Slack Investor | How to invest successfully without too much effort

September 2019 – End of Month Update … and Portfolio Trim

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have had a bit of a recovery this month ( ASX 200 +1.3%; FTSE100 +2.8%; S&P500 +1.7%).

The Federal Reserve bank of Cleveland have the probability of recession within the next year at 37.9%. This exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). As it is the end of the quarter, the Slack Portfolio has been updated with some readjustment of the portfolio and a solid whack of cash (5.1%).

Trim the Sails … things might get rough

Trimming the Sails by Anton Otto Fischer – from Artnet

The economists at the Cleveland Fed are rating the chances of recession as significant. This is enough for Slack Investor to do a little portfolio trimming and try to dampen the effect on my capital if a recession does happen. I am a long way from going “all the way” and converting my entire share portfolio to cash-like products – though some pundits already have. There are a few reasons for this Slack approach

I am not a very good predictor of exactly when things might go bad
The returns for the safety of cash are not good at the moment, under 2%
I have a buffer of cash income that will help me weather through any economic downturn without having to sell any stocks at downtrodden prices – Those without a cash buffer or subject to sequencing risk should take a more prudent approach than Slack Investor.
Most of my stocks are producing reasonable dividends

Sequencing risk peaks in the seven or so years before and after retirement. Investors at this stage have a higher retirement balance and typically more of it invested in shares, meaning they have more to lose if sharemarkets tumble …
From an AFR article by Tony Featherstone

Sequencing risk refers to the possibility that a retiree that depends on his savings for income may have his capital (and future income) greatly reduced by a sequence of poor returning years (such as a recession!). The retiree would be in danger of having to draw down on capital at depressed prices.

A solution for retirees to the problem of sequencing risk is to set aside 2-3 years of income in cash assets that can be used for income while the underlying assets are waiting to recover. This strategy avoids a “fire sale of assets” during a recession.

Those younger folk still in the accumulation stage can hope that any future economic downturn does not affect the employment market too much – Jobs and income are a key to survival in tough times. As far as investments are concerned, the effects of a recession are only temporary and things will recover (see chart below). Downturns are a good time to start buying if you have any spare funds.

I am happy with my minimal trim approach as I generally invest in solid money earning companies that may suffer in earnings during a recession … but wont go broke and disappear.

For stock owners, recessions and economic downturns are only bad if you have to sell your stock before the inevitable recovery. In these trying times I am often comforted by long term share charts. Please note that any downturn is always followed by a recovery- though in some cases, it may take a few years.

This Long-term S&P chart for US stocks over 120 years (On a log scale). Periodic recessions are shown as grey columns – and the ability of stock prices to recover after any major world crisis is illustrated by the general increase in stock prices as you go forward in time. -From Business Insider Australia

My Slack trimming strategy has several components

Sell some of my stocks that have increased in price and now have extremely high PE Ratios – Although some, like Altium, are hard to let go. They are “old friends” and I am very sentimental to consistent company performance over many years.
Increase the weighting of my portfolio towards cash or bonds or fixed interest.
Try to be invested in companies may not suffer too much during an economic downturn i.e. Healthcare, Essential products.
Re-focus on dividends – the dividends might reduce a little in a downturn but the income is important. Dividends have in the past been much less volatile than share prices.

I have not changed the core of my portfolio, just fiddled around with 20% of it. Some more detail on the portfolio trimming in the next post.

Exercise and Wine … What could go wrong?

Dr Spock with the Vulcan Salute which usually comes with the salutation “Live long and Prosper” – Image may be subject to copyright – Star Trek

Most of Slack Investor’s blog is about becoming financially sound, but there is also a need to be happy and healthy and to flourish in other areas. Spock and his fellow Vulcans are all over this idea – Live Long and Prosper – What is the use of becoming financially prosperous if you can’t be around to enjoy the choices that this state can offer.

One of my favourite UK blogs The Escape Artist also flogs the theme of trying to be fit and healthy of body … as well as looking after your financial state. There can be a parallel in approaches to athletic and financial matters.

Set Goals

36 years ago, my brother and I were sitting in a Greek Restaurant with a bottle or two of Retsina and we were full of youthful optimism and set ourselves a list of things we would like to get done in life. They were exciting things like “have a girlfriend”, jump out of a plane, learn how to scuba dive, go on a TV talent show, etc. I am pleased to say that most goals were achieved within 5-years of that goal setting night – but the elusive one was to “Run a marathon”. We found this task even harder than finding a girlfriend! 42 kilometres is a long way and the training required to do this thing properly had this feat rolling around in the “too hard basket” for decades.

That was … until 2018.

Work Hard through efficient research

Slack Investor believes that there can be many solutions to a problem, and as my body aged and I became even slacker, it was apparent that the conventional route of working up to this great distance over time and training 6-days a week was not going to cut it. One look at the Runners World suggested marathon training program over at least 6 months and starting at 24 km per week building up to 64 km – gave me the “vapours”. The “Fair Dinkum” marathon runners train hard and aim for below 4-hr times and these folks have my greatest respect. Most marathons have qualifying times for participants and they usually sweep the slower runners off the course if they can’t complete in 6 hours. My challenge was to find a marathon in the world that had a generous cut off time – that would accommodate slack athletes.

While not a complete fitness numpty, Slack Investor has trouble running 5km comfortably at a shuffling pace – and the thought of running further than that is mildly appalling! You can see the dilemma here.

Festivals of “Convivialité ” to the rescue

Luckily we have the French to remind us of the joy of life and each year they have 20 Conviviality challenges that are run by regional communites that involve some sort of running combined with tastings of wines and other regional delicacies. To add to the festival theme, the runs are usually done in fancy dress.

The most famous of these Convivialite’s is the Marathon du Medoc where, one day in September, 8500 participants run around the beautiful Medoc area, near Bordeaux. Registrations must be done by the previous March and I found the combined accommodation/run packages the easiest way in. There are refreshment stops along the way where 20 of the wineries around the Pauillac area will offer water, wine, music and food. It is tempting to linger at each Chateau but there is the ever present sweeping crew that will put you out of the marathon if you are slower than the required 6.5 – 7 hr pace.

In the same way as investing, Slack Investor likes to break things down into achievable chunks. I was working on a theoretical finishing time of 6 hrs and 45 min (405 minutes).

First 30 km Plan – I thought that using my ungainly shuffling jog I could do 5 sets of 5km runs at a 7 min per km pace (175 min). I could walk a kilometer between each 5km runs (to gather breath!), 4 lots of walking at a 10 min per km pace (40 min) . This plan will use up a total of 215 minutes to do 30 km.

Last 12km Plan – I knew that I would be knackered here … but still hoping I could comfortable walk a kilometre in 10 min. If I walked the last 12 km, that would use up 120 min.

The planned running/walking would use up 335 min (215 +120), leaving 70 min (405 – 335) for wine tastings, toilet stops, recoveries! Even allowing for time shrinkage – this was a good plan!

Image may contain: David Nahrung, smiling, standing and outdoor — Slack Investor in a fetching outfit prior to the the run with fellow Aussie “Steve Irwin”

Image may contain: 1 person, smiling, outdoor — Slack Investor about to cross the finish line – Goal achieved!

Well, I signed up for the Medoc 2018 Marathon … and happily, the plan was executed (in a fashion). There was more time shrinkage than anticipated – and it was hot! I did not have a wine at every stop (Although my colleague “Steve Irwin” did! I was scared the wheels would fall off my plan if I imbibed too early …. so I had a wine-free first 20 km … but after that, I found each of the Chateau offerings delightful.

Would I do this again? It was a lot of fun and a worthy bucket list destination – but it was hard! The day after there was a 10km walk through four Chateaus over 3 hours. Much more my style, I will seek out these more leisurely, but still challenging, events in future. I have now retired from marathon running and look forward to new adventures.

Choose your battles … then Go Hard. Live Long and Prosper … in wine is truth!

August 2019 – End of Month Update … and “I’ll Give you a Yield Curve!”

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have taken a bit of a savage beating this month ( ASX 200 -3.1%; FTSE100 -5.0%; S&P500 -1.8%). Thanks Boris and Mr Trump!

As well as this turmoil (kind of normal), my monthly looking at the charts this month has revealed that I have forgotten to adjust the stop loss upwards – I should have done this last month. My rule is that when the monthly index chart forms a new “minimum” and the monthly range drops below the black 10-month average line, a new minimum is formed and I should adjust upwards the stop loss. I have done this for the UK index (shown above in the green circle) and also the US Index (see the index pages for details).

I still remain nervous about the current situation. However, checking out the US Yield Curve indicator at GuruFocus , this indicator has oscillated to negative again. Because of its fluctuations, I have decided to switch to a “Probability of Recession” Indicator (see below). My monthly stop losses for Index funds are now “switched ON”(see below).

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Inverted Yield Curve … Probability of Recession … Yeah Baby!

Tributes to the great Mike Myers for creating the most excellent character Austin Powers … I could see Austin becoming obsessed with the yield curve… Maybe not … Credit to Austin Powers: International Man of Mystery (1997)

The Inverted Yield Curve has been all over the financial and even mainstream press lately – as a possible predictor of recessions. There is some contrary evidence of an imminent recession due to continued good employment in the US, but most economists have some faith in the predictive power of the yield curve. Slack Investor will admit to not knowing much about this till recently … and is still learning. I wanted to develop a way for me to know when a slip of my index funds below a stop loss was Really Serious! – and not just a temporary downturn that would shake me out of a position … and then recover. This is the battle that a trend trading investor often has.

Trend-following systems either suffer from a large number of shake-outs or are slow to exit when the trend reverses; and often both. You can’t have your cake and eat it.
Colin Twiggs, founder of the excellent Incredible Charts and The Patient Investor

Slack Investor typically wants his cake and to eat it! – and is always on the lookout for a way for this impossible thing to happen.

Slack Investor has often made a virtue of using other peoples work in areas that require a lot of effort and research. I am happy to outsource my Inverted Yield Curve study to the boffins at the Federal Reserve Bank of Cleveland who supply a monthly prediction of the likelihood of a recession using the slope of the yield curve and GDP growth to provide predictions of future GDP growth. Like all good researchers, they caution not to take their predictions too literally but a glance at the chart below show that when the Reserve Bank of Cleveland Fed predicts a probability above say 20%, a recession (the grey columns) usually (not always) follows. As I am feeling my way on this one … I will use the predictions above 20% barrier to make my stop losses live! They currently have the likelihood of recession within one year at 44.1% … so all my stop losses are “live” at the moment.

The Fed Reserve Bank of Cleveland are predicting a 44.1% chance of recession within one year based upon end of August data. The Grey columns are the recessions, the blue line are the Cleveland Fed’s past predictions and the red line “gazes” into the future.

Financial Year 2019 Slack Results

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
Warren Buffet

The art of getting things mostly right is all that Slack Investor wants to do – this is a theme that echoes throughout this blog. Slack Investor does not aim for perfection – good enough is good enough. Along the way will be fantastic opportunities that I missed out on … but that’s OK too.

Though not in Mr Buffet’s league, stock pick failures are something that we both accept – providing that they are not too common! Mr Buffet probably has regrets about his $US14 billion stake in Kraft Heinz … but unlikely to be losing any sleep about it. The Slack stinkers were outlined last post – again, no sleep lost. There will be times when the entire Slack portfolio goes negative – A good example is the first half of last financial year, From July 01 till December 31 2018, things were grim with the Australian Market down 9% and the Slack Portfolio down over 10% and the journey so far this financial year has been “wild and woolly”.

ASX 2oo Weekly chart for FY 2019 (01 July 2018 – 30 June 2019) – Incredible Charts

Slack Performance Results FY 2019

Performance results are before tax and, despite being over 10% down at the end of December, the Slack Portfolio grew a creditable 19.7% for the year. Full yearly results with benchmarks are shown in the table below. I have changed the residential property benchmarks.I am now using Corelogic Total Returns. This benchmark accounts for yearly asset price change as well as the gross rental yield. This provides a better benchmark for me as it reflects total return and answers the question – Would Slack funds be better deployed in Australian real estate?

In a 6 out of 10 years, the median balanced fund has done considerably better than asset growth plus the gross rental return from median Melbourne residential property. In 8 out of 10 years, the Slack fund has done better than Melbourne Property returns.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	10.8	26.9	4.2	3.1
2011	2.5	8.7	9.1	11.7	-2.4	0.9	4.4	3.7
2012	8.3	0.4	1.3	-6.7	1.3	-0.9	4.3	1.2
2013	26.5	14.7	18.6	22.8	7.7	8.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	11.5	12.8	2.6	3.0
2015	2.4	9.6	11.8	5.7	7.7	15.6	2.5	1.5
2016	14.2	2.8	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	10.4	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	9.2	10.0	13.0	1.1	5.2	3.9	2.1
2019	19.7	7.2	9.8	11.2	1.7	-6.0	2.0	1.3

The Slack Fund yearly progress vs BENCHMARKS. The Median Balanced Fund, Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property total return in both Brisbane and Melbourne, and Cash (Online bank Interest) and Consumer Price Index (CPI)

The Five-year compound annual performance gives me a much better idea about how things are going and will smooth out any dud (or remarkable!) results.

The compounding nature of a succession of good performance results can be seen in this growth of an initial investment of $10000 chart.

Thanks to Vlad Kolarov for a good image that might sum up Slack Investors situation.

Well, so far so good … but trade wars, Trump, China and the constant press about the next recession are starting to make Slack Investor worry whether he has got any concrete shoes on. A momentary lie on the couch and a modest celebration for the good results this year and it might then be time for a review of the portfolio. A clean out of some of the companies that I am a bit doubtful about … and a think about what companies, or ETF’s, might do OK if a recession was to occur in the next 6 months to two years. Slack Investor has poor form in trying to predict the future … so wholesale changes are unlikely, but a tinkering around the edges of the portfolio might just be the right thing. In the wise words of Peter Lynch …

“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”
Peter Lynch, One Up On Wall Street:

July 2019 – End of Month Update … and FY2019 Nuggets and Stinkers

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are all in positive territory this month ( ASX 200 +2.9%; FTSE100 +2.2%; S&P500 +1.3%). All markets are still “exuberent”. However, checking out the US Yield Curve indicator at GuruFocus , the indicator again shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Slack Investor Stinkers – FY 2019

Stinkers are part of investing in growth stocks. Growth stocks usually have a high Return on Equity (ROE>15%). By their nature, they have a relatively high PE ratio and are usually punished in the markets during reporting season if there is any bad news – and I am not too worried when this occurs – It is the total performance of the portfolio that counts. If they breach their monthly stop loss – I will review the stocks and ask myself the question – Factoring in what I know now about this company, would I still buy this stock at its current price? – If not, out it goes!

The percentage yearly returns quoted in this post include costs (brokerage) but are before tax. This raw figure can then be compared with other investment returns.

Costa Group (CGC) -34%

This should be a lesson to Slack Investor … try to avoid growth companies that do not set the price of its products i.e. are “price takers”. This agricultural company had some earnings revisions during January and May due to weather and some difficulties in their Morocco operations. I have hung in and still own the company as it looks cheap on projected price earnings … but another downgrade would test my good humour.

Costa Group (CGC) Daily Chart with some bad news in January and May 2019

Challenger (CGF) -30%

I have been listening to the story of this company for ages. Its income products (annuities) should really appeal to the retiring baby boomers. However, there has been a long slide in price of its shares. In a bit of “hands on” research, I had a look at their CarePlus product for a relative moving into Aged Care – Their package was difficult to sign up to, and the web examples used were underwhelming. Perhaps they market more to financial advisors than for retail investors. The good thing about reviewing the chart of a stock every week is that eventually you “wake up”. I sold the shares in March.

Dishonourable mentions to Corporate Travel (CTD), Platinum Capital (PMC) and Worley Parsons (WOR), which all lost more than 10% this financial year.

Slack Investor Gold Nuggets – FY 2019

By investing in companies with high return on Equity with a track record of increasing earnings, you can expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values for each stock are found on the excellent Market Screener site.

ProMedicus (PME) +148%

Pro Medicus is an Australian company that produces medical imaging software for hospitals and medical specialists. Their products are used worldwide and there are e projected increasing sales. Their ROE 2020 is an excellent 41%,however, their projected PE ratio for 2020 is over 100. This is dangerous over value territory – and I am watching this stock closely for any price declines. But until then, I am riding this horse home.

Appen (APX) +101%

Appen supplies data services to global tech companies and their language division provides machine-learning technologies for devices. Perhaps because I don’t really understand what they do and because of their high estimated 2020 PE ratio of 61. I said thanks very much and then I got out of this stock last month. However, the price of this stock is still climbing! Ouch!

Rhipe (RHP) +79%

Rhipe is another tech company that I had a speculative interest in. It provides software licences that help their clients transition into a “cloud” environment. Rhipe has a working relationship with Microsoft in Australia but their high 2020 projected PE of 39 makes it another stock that may be overvalued and I am watching it closely.

Altium (ALU) +53%

Another fantastic year for ALU The designing of integrated circuit boards for technology products is proving to be a lucrative business. A high 2020 projected PE of 39 is a concern -but I really am smitten with this company – as they have been great growers of their business.

Service Stream (SSM) +52%

Service stream provides network services to Utility companies. This is the sort of company that Slack Investor loves. A high ROE of 20% and a reasonable 2020 projected PE of 19 with anticipated earnings growth.

Honourable mentions for Slack Investor portfolio stocks AMC and RHC that increased more than 20% in this financial year.

Slack Investor Total SMSF performance – FY 2019

In another good year for shares where Chant West reports median growth super funds made 7%, the FY 19 Slack Investor preliminary Total SMSF performance looks like coming in around 20%. Anyone can fluke one good year so 5-yr performance is a more useful benchmark to me and the Slack Portfolio now has a compounding annual 5-yr return of over 18%.

Not bad Slack Investor … now get back on the couch … with full FY 2019 results and benchmarks next post.

Robo On

When Robo Advice gets it wrong … Exterminate Financial Freedom! – Image from aminoapps.com

Last month’s post on robo advice had a look at a couple of options … but there is more. They all work in much the same way. In the “old days”, to enter the investing world you would have to register with a broker (e.g. Self Wealth, CommSec) to get access to shares or Exchange Traded Funds (ETFs) – and you would be charged brokerage for each buy and sell. Each ETF also has a management fee (usually 0.10% to 0.50% per year) but that is deducted from your returns internally.

A recent Choice article outlines two things have worked against young people investing in the stock market. Firstly, a lack of knowledge about how to start investing, and then, not having a decent stash of money saved up to make broker fees worthwhile.

With the robo advisors, small amounts are no problem. For a monthly fee they take care of the purchasing and the brokerage – This is usually a much easier experience as it takes less thought and action.

From the robo advice website you open an account and establish your identity.
After a few questions to get your risk profile, the robo advisor will suggest a portfolio of ETFs.
Your bank account details must be given to fund your initial portfolio of ETFs.
You might also setup a regular investment and some of the robo advisors ( Raiz and FirstStep have a cool rounding feature where your everyday card purchases are rounded to the nearest dollar – and the rounding excess will go towards your portfolio.
The Robo Adviser does regular rebalancing of your portfolio.

Robo your Investing

Lets Robo On, Six park, Stockspot, Raiz, Clover, QuietGrowth and FirstStep have some great offerings and are worth a look.

ROBO ADVISOR	Fee Schedule	$2,500 portfolio fees pa	$10,000 portfolio fees pa	$200,000 portfolio fees pa
Six Park	Minimum $10000. Management Fee 0.4% to 0.5%	……	$50	$1,000
Stockspot	Fixed fee of $66 pa for balances < $10k with asset based fees of 0.396% to 0.66% pa	$66	$66	$1,320
Raiz	$1.25 per month <$5K; 0.275% pa >$5K	$15	$27.50	$550
Clover	Minimum $2500. $5.50 per month <$10K; 0.45% -0.65% pa >$10K	$66	$71.50	$1,210
Quietgrowth	Minimum $2000. Promotion No Monthly Fees <$10K; 0.40% – 0.60% pa >$10K	$0	$0	$1,045
First Step	$1.25 per month <$5500; 0.275% pa >$5500	$15	$27.50	$550

The above prices were compiled July 2019 and should be checked before you start investing.

Robo your Super

All of the above Robo advisors will help you build up your ETF investments as a “side hustle”. But, there is a new way of adding to your existing super (hopefully you have made an effort to make sure it is an Industry Fund!) in a relatively painless way. Longevity has a mobile phone app that automatically tops up your Super calculated as a percentage of your everyday purchases – into whatever super account you choose. It is based on your everyday spending and then calculated as a percentage of your spend (default 1% – but go higher if you can -and maybe a set amount each payday!). At the minimum, if you spend $200 on groceries, this will generate a 2 dollar deduction at the end of the month. You can limit your monthly deductions to an amount – so that you don’t go negative in your everyday account.

Because Longevity operates in the superannuation environment it is taxed favourably compared to investments outside of super where earnings are taxed at your marginal tax rate.

What to do Now?

There is always a bit of inertia involved to enter the world of investing. More experienced investors who already have a lump of cash and a disciplined approach to saving perhaps don’t need savings apps like Raiz. They could buy ETF’s directly through a discount broker (e.g Self Wealth), or setup a more sophisticated robo account with Stockspot. Robo investment apps such as those in the above table aren’t after this demographic. Most Robo Advice platforms are targeting younger people who might not otherwise start investing until much later in life.

“Raiz aims to encourage its customers to be mindful of their spending and to start saving and investing some of their income … the average Raiz customer has made 11% per annum since launch
Raiz’s Managing Director, George Lucas. from Choice

Simple steps

When in doubt, do something.
Singer-Songwriter Harry Chapin of “Cats in the Cradle” fame

The beauty of Robo Apps and instruments is that they are an easy way for anyone to start investing. Slack Investor says … just start! The rounding and transactional nature of Raiz and Firststep really appeal to me. Slack Investor likes this sort of painless saving and would get either of these apps as a great first step into investing. I wish these vehicles were around in my younger days. There are risks involved (i.e. share prices going down!) – but hey, That’s Investing – and the risks diminish over period of time (say, 5 years) – According to ASIC, Risk is part of the investing experience.

Given the huge returns money invested early in life can generate, the costs of the lower priced robo devices (e.g Raiz, FirstStep, Longevity) of around $1.25 a month is very reasonable. Pick a platform, install their app and set your contributions – You are launched into the wonderful world of investing – get on that road!

June 2019 – End of Month Update … and “nudging” to good financial habits

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. If last month was a “Risk Off” then for the month of June they have slapped on the crazy pants and become definitely “Risk On”. The Slack Investor followed overseas markets have bounced back from a shocker last month (FTSE100 +3.7%; S&P500 +6.9%) and the ASX 200 powered on with +3.5%. All markets are above the monthly stop losses – but feeling a bit “frothy”. However, checking out the US Yield Curve indicator at GuruFocus shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). – As it is the end of the Financial year and quarter, the Slack Portfolio has been updated with some stock exits and a gradual build up of cash. Now over 8% – A slack record!

Give us a Nudge

The classic Monty Python “Nudge Nudge” sketch – the full delights of this 3-minute romp can be found on youtube

We frail human beings do not behave rationally. It is easy to project a path to a well funded retirement on paper – yet so few really achieve it. A couple of clever cognitive psychologists , Danny Kahneman and Amos Tversky put some effort into studying human behaviour.

Mr Kahneman, an Israeli-American psychologist and Nobel economics laureate, has delivered a full catalogue of the biases, shortcuts and cognitive illusions to which our species regularly succumbs. In doing so he makes it plain that Homo economicus—the rational model of human behaviour beloved of economists—is as fantastical as a unicorn.
From The Economist – Not So Smart Now

To account for our lack of rational behaviour -it is sometimes necessary to give ourselves a nudge in the right direction by tricking our feeble brains into good habits.

Compulsory Saving

The best way to save money is to convince yourself that you didn’t really have it in the first place – and, as the new financial year starts, this is the time … seize the day and quarantine some of your hard earned cash.

There are lots of ways to do this

Direct debit funds to your Savings account from your transaction account – After every payday, set up a regular direct debit instruction with your bank to divert funds to your online savings account
Add to your Super – Set up with your paymaster to add to your superannuation through salary sacrifice – the first $25000 is taxed at only 15%. Or, you can make a contribution straight from your bank account directly to your super fund but there is a bit of ATO paperwork to claim its tax-free status.
Use a bit of robo technology to set up periodic payments and rounding up of your daily transactions – Use Raiz to set up a savings account that invests your savings in shares and bonds or Longevity to add to your super account – More on these robo bits next post.

Robo-Advice – Disruptor Beams are ON

The Class M-3 Model B9 (Pictured) was one of the first examples of Robo-advice and would always issue Will Robinson, of the 1960’s TV show, Lost in Space with sage guidance. Can we expect the same from this new generation of Robo Advisors? My Star Trek knowledge tells me one thing for sure, the Disruptors are on!

Slack Investor has already had a bit of a rant on the layers of fees that you can expect from seeing a Financial advisor. But many would benefit from financial advice – Can we get it from the Robots? There are quite a few Financial Robo-advice companies emerging. Lets begin with a couple that have caught Slack Investor’s eye – Plenty and Stockspot.

Plenty – A Good place to start

Plenty is a new service that, after a 15-minute online questionnaire, develops tailored (up to a point) financial advice for no cost. Plenty offer more than most robo advisors. In addition to an automated platform for investing, they offer a whole advice product similar to more conventional financial advisors. Their basic service is free and, if you need it, they charge fees to help you implement the plan. Their Blog is pretty good too. Due to high demand, unfortunately, Plenty are not taking on new clients at present. But this doesn’t stop us using their structure to develop your own financial roadmap. An example of the financial plan that it robo-generates is here.

Image from From Plenty Blog – What Do Financial Planners Do?

When Plenty takes on clients again, to get their online plan you must divulge your financial details (bank accounts, super, etc) – this is a bit scary and is usually the point where Slack Investor … Says NO!

However, the way that Plenty provides a free robo-way towards your financial goals is fully Slack Investor approved. They claim to be “product agnostic” and will only recommend the lowest fee (best!) products that aim to get you in a good financial state. The Plenty example financial plan contains plenty of good ideas!

Lower Fees – Oh Yeah!
Smarter Investments – Through ETF’s and Listed Investment Companies (LIC’s) – Sounds easy doesn’t it!
Lower Interest on Debt – Making sure you get the lowest interest rates on your debts
Save Tax – Thanks Kerry Packer!
Spend appropriately – Budget … and measure what you spend
Protect your financial position with insurance – Very important for those with dependants or a big mortgage. Slack Investor does not have financial insurances now that he is in retirement mode with little debt. However, when I did need insurance, I would get my income, death & disability insurance through my super fund – as this was the cheapest way.

Stockspot

“I started Stockspot five years ago because I saw too many people getting poor investment advice from stockbrokers and financial advisers”
“The evidence shows that simple, low-cost ETFs [exchange traded funds] beat picking stocks or paying expensive fund managers over the long run.”
Chris Brycki – From article in Business Insider

Stockspot was started by Chris Brycki, is Australian owned, and has excellent intentions. Their investment vehicles are low-cost ETF’s and through a quick online questionnaire you can determine your risk profile and suggested pre-determined mix of investments. For example, the Emerald growth portfolio is shown below

An example of one of the five Stockspot recommended portfolios

There are no entrance and exit fees, the fee structure is based upon the amount invested. For a $30 000 account, the fees are .055% (or $16.50 per month). This works out as a yearly fee of 0.66% (or $198). The fees are a bit annoying on first glance – However, Stockspot do not charge for brokerage and rebalancing your portfolio – this is a good deal for the more hands off investor.

You could save $100 per year to set up a similar bunch of ETF’s as those shown above and do the rebalancing yourself. Let us say, your target portfolio had 5 ETF’s and you rebalance them once per year, using the rock bottom brokerage of SelfWealth at $9.50 per trade – 10 trades per year would cost $95.

However, the whole idea about Robo Advice is to make things simpler and combat the inertia to action that gets in the way of our accumulating wealth. If embracing the full robo, then the extra hassle of doing everything by yourself is probably not worth the money saved.

Lets Robo On, there are plenty of other players in this exciting new area. Six park, Raiz, Clover, QuietGrowth and FirstStep will get a bit of a look next month.

May 2019 – End of Month Update … and, that recession vibe

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. In what the cool investor analyst types call a “Risk Off” month there were big falls in Slack Investor followed overseas markets (FTSE100 -3.5%; S&P500 -6.6%) – but for the moment, still above the monthly stop losses. Checking out the US Yield Curve indicator at GuruFocus shows a negative result (Just … -0.05% though!) so my monthly stop losses for Index funds are definitely “live”.

The Australian ASX200 had a positive month (+1.1%) – but this was due mainly to the election of a “business-friendly” government on May 18. General nervousness prevails though.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

That Recession Vibe

Trump and Xi are shaping up for a trade war and I don’t like the smell of it … especially with news reports such as “If you want to talk, the door is open; if you want to fight, we’ll fight to the end,” said a Chinese TV anchor, capturing the mood in Beijing. – Image from Business Insider

Slack Investor is no great predictor of trends – But, whenever things are going well in the stock market, experienced investors naturally get skittish – Particularly when two belligerent world leaders are at loggerheads. There is a chance that all of this will get solved at the next G-20 in June. But Bloomberg analysts think it is more likely that the trade war will be long, messy—and expensive. Thanks Donald!

(The US economy is going OK) but … other countries remain sluggish or are slowing. Diminishing global growth could drag down the U.S. also. … although the Federal Reserve is now signaling a halt in its rate hiking, it has raised interest rates nine times since December 2015. At some point, those higher rates become the gravitational force that pulls down stock prices.
From Ray Martin at CBS News

All of this uncertainty is talked about constantly in the media and with trade war stuff thrown in as well, as all fans of The Castle know … ” It’s the Vibe!”, When all of this negative stuff gets too much. for a quick recession-busting refresher, try this Youtube highlights clip from the film.

Slack Investor has mentioned one of the pre-indicators of a recession, the US Bond Yield Curve, which has just gone into the “Red Zone”. The economist boffins have been very diligent at Citibank and have tracked a range of 18 economic statistics up to the end of April. The US Yield curve is just one of these and is #6 on the list. They compare current statistics with those from previous “proper” recessions.

The Citibank Global Bear Market Checklist

Citi’s Bear Market Checklist (BMC) shows only 4 out of 18 red flags, and suggests that it is too early to call the end of this ten year bull market. In previous cycles, the BMC red flags have accumulated gradually before rising exponentially in the last year of the bull market. Citi analysts would be more concerned when 7-8 factors are flagging caution.
From Citi Insights

So Slack Investor does what he does best … and leaves the economics research to those who can do it well … business as usual. There are a couple of my individual stocks (CTD, CGC, PMC) that are on the slide and may need attention. I will look at their numbers and outlooks (and charts) again this week on Market Screener . But other than that, I will ease, ever so slowly, into the couch.

Financial Advice – If you Must

Cartoon from the most witty and prolific Mark Lynch from toonpool

Slack Investor has long been in the school of “Educate Yourself” in financial matters and maintains this is the best way to do it – But a lot of people (Obviously not Slack Investor readers!) find financial organization very difficult. It is complicated to be across all the intricacies of saving, mortgages, superannuation, taxation, and investment. However, you can draw upon the wisdom of some smart financial bloggers here – Check out the Slack Blogroll – the internet is your friend.

If you must see a financial advisor, after the initial consultation, they will prepare a Statement of Advice – which should be the guiding document for your circumstances and contain a full disclosure of their fees.

According to the Productivity Commission, almost half of Australian adults need financial advice. With the industry coming under criticism for greed and conflicts of interest, it is difficult for consumers to be confident that they are receiving good advice.
from ABC News

Prepare for Layers of Fees

Let’s start with an example provided by ASIC – which I assume reflects typical financial advisor costs. Edward engages a financial planner to get a statement of advice together for his $400000 (including super). The adviser offers to put together a financial plan for $3,500 with a further implementation fee of $1,500. This almost doesn’t sound too bad so far – But, it is instructive to look at the full breakdown of costs below. Platform fees, ongoing advice fees, management fees and insurance premiums will result in poor Edward getting slugged $14000 in the first year and $9000 ongoing per annum. If these costs are typical, this is outrageous – He is paying 3.5% of his wealth initially, and then 2.3% ongoing. The fees can usually be paid separately or deducted from your investment income as part of your annual statement.

Example given by ASIC showing a financial advisor fee structure for the investing of Edwards assets of $400K From ASIC – Financial Advice Costs

The Hayne Royal commission exposed many cases where advisors were conflicted by personal gains (commissions, etc) when giving financial guidance. A lot of the commissions have been banned now, but there are sometimes internal incentives to recommend certain products. I don’t want to besmirch all advisors here, but it makes sense that you would have the best chance of getting good advice if your advisor was truly independent – There aren’t many of these according to ABC news, only about 60 in Australia – All are registered with the Independent Financial Advisers Association of Australia (IFAAA). But even with the independents, be wary of costs.

*Cartoon from the equally witty and prolific* Randy Glasbergen from source

If you don’t want to take the full responsibility for the nuts and bolts of financial independence onto yourself, I can see real benefits in seeing a knowledgeable fee-for-service financial advisor to set up a one-off tax effective savings structure that will guide you through the mid-thirties through till retirement. Or, it may be wise to get help for specific situations e.g., Self Managed Superannuation strategies.

Where I don’t see value is the too common situation where people front up to the financial planners on the doorstep of retirement with their life savings. There is the potential for an avalanche of fees – as well as the up front costs, each recommended product will have its own management fees.

Alternatives

Naturally, Slack Investor looks to reduce fees where possible. If you don’t want to go it alone along the “full monty” self-education route, there are some cheaper alternatives to the traditional financial advice model emerging. These Robo-Advice structures show promise for some aspects of the financial advisor’s job – How to steadily accumulate wealth and then, how to turn this wealth into an income to support your retirement. It’s new, it’s exciting it’s … Robo, it’s coming next month.