Slack Investor | How to invest successfully without too much effort

July 2017 – End of Month Update … and Long Term Returns!

Slack Investor remains IN for US, UK, and Australian index shares.

A steady month for the ASX and gains for the UK market (0.7%) and the US Market (2.3%) – It must be the “Mooch” Effect. I am sad to see him go … In a circus you need heaps of clowns!

Chant West are a superannuation consultancy and research firm that release a trove of data on how superannuation is rolling along in Australia. The have excelled themselves in a very timely media release. outlining that this is the 8th financial year in a row of median gains for Australian Super “Growth” funds. They define growth funds as funds that invest 60-80% of their investments in growth assets such as shares and property. Their results for the past 25 years for Australian Super Funds is presented below.

Median Australian Growth Super Financial Year Returns (%) – net of fees and taxes – from Chant West

Despite the worries of the world, this last financial year, the median of Australian growth funds achieved a 10.7% return and some of the low fee funds discussed in the last post, such as HostPlus and Sunsuper achieved FY17 returns of 13.2% and 12.4% respectively in a year where the safety of cash could only yield 1.8%.

The five-year period up till now have been boom times for the share market. There will be high fives and bonuses all round for the suits that control your funds. This has been a good investing year and you should rejoice at the returns shown in your super statements when they are sent to you soon – and reflect upon the pitiful returns that you would have got if you had your super invested in a bank account.

But, it is a good reminder that not all years represent gravy for growth funds and it is the nature of these assets that their will be some yearly fluctuations. Slack Investor’s feeble memory is strong on the returns of the years 2008 and 2009 where the Global Financial Crisis caused asset prices and market returns to crash. I can remember many who lamented that this compulsory super business was a costly rort – it was tough to watch your retirement savings shrink even though money was taken out of your wages each week.

Slack Investor has a soft spot for the bard

“Ay, to the proof, as mountains are for winds, that shakes not, though they blow perpetually.” ― William Shakespeare, The Taming of the Shrew

So “shake not” dear investors … think long term and think growth … and despite the occasional disappointment … you will be rewarded! Compound interest will be doing its work on your savings in all those years that are blue in the above image – It is only fair that you have got to give compound interest the occasional year off – for recuperation!

I have updated all Index pages and charts to reflect the end of month data. .

Spaceship … Let Me Out Here!

Hey you Millennial dudes and hipsters… Suh!

Space … sounds good … its so snatched! … Spaceship … even better. Come on … lets get on board. Superannuation is so boring … but Spaceship .. Its so now – isn’t Elon Musk working on one?

What Slack Investor is referring to is the reach out to the younger crowd of cool new investor products that will look after your superannuation in a really cool way. Spaceship, is just one of the new breed of disruptors (e.g, Zuper, MobiSuper, Grow Super) that is encouraging you to put your super investments into a high tech sounding enterprise that focuses on new technology companies. It seems that their marketing push has been successful with at least $100 million in funds under management for Spaceship.

Now, Slack Investor has a soft spot for disruptors that make use of new technology to help the investor work more efficiently through lower costs and new platforms. However, Spaceship and their ilk are not, so far, disruptors. They are just a repackaging of the same old greedy financial industry that are trying to separate the investor from their hard earned loot.

We had a look at the critical importance of fees in investment in an earlier articles here and here. Despite the marketing fluff, Slack Investor is getting off the couch and drilling down. A highly recommended process before you part with your money to anyone. Spaceship fees are 1.6% plus administration, MobiSuper fees 1.5% plus admin fees, Grow Super fees are 1.85%! Fees are critical to investment returns.

The same drilling down process can be done in the USA with Individual Retirement Accounts (IRA) or employer sponsored 401(k) plans. Google is your friend – Long term performance and Fees Fees Fees is what you are looking for. A good articles for the USA on fee impact can be found here, And for the UK here.

The Australian Securities and investment commission (ASIC) says

A 1 % difference in fees can lead to a 20 per cent difference in the value of a superannuation benefit over 30 years.

From Hostplus – Money Magazine Best of Best 2017

The above table shows some existing funds that have established long-term returns and with a fee structure less than 0.5% for $50000 invested.

So get out of the spaceship … and relish life on planet Earth with some low cost super funds … they are so “On Fleek” as far as your money is concerned.

June 2017 – End of Month Update … and Stop Losses!

Slack Investor remains IN for US, UK, and Australian index shares.

Despite a bad month for the UK index where the previous month gains were wiped out, there are no alarm bells yet. All markets have had a reasonable financial year (to Jun 30, 2017) with 12-month returns for the US, UK and Australian Index of 15.2%, 13.0% and 9.6%, respectively. These returns, for simplicity of calculation, do not include dividends. For the Australian market, the dividends would add another 4-5%!

And now for a confession …. Slack Investor has been slack … and not moving his market index stop losses properly! I put this down to an oversight and have included an extra few columns on the Index pages to help me not do this again.

Stop Losses are very important to the Slack Investor’s method and offer a detached way in which to make decisions at the end of every month. The stop losses are set at the time of share purchase and moved upward according to a modified version of Dow theory. This trend method was discussed in an earlier post The Trend is Your Friend …

Slack Investors’s Index trading method involves moving the stop loss level upwards to a new higher low when it is established on the monthly chart. There are a couple of rules that I have to keep me in the index trade as long as possible.

Stop Loss Rule No. 1: A Higher Low can only be established below the 10-month moving average (the wavy black line on the index chart pages).

Stop Loss Rule No. 2: Stop Loss Rule No. 1. does not apply if the monthly closing price is more than 20% above the set stop loss.

For the UK Index, back at the end of February, the end of month price rose 21% above the stop loss level. I should have moved the Stop Loss level then … but I have now caught up and include the adjustment on the UK Index page. I include the technical chart information for some readers who are interested … but don’t worry, Slack Investor will tell you at the start of each month what each of his decisions are in the monthly updates for the US, UK and Australian Index.

Warren Buffet has some much more famous investment rules …

Rule No. 1: Never Lose Money.

Rule No. 2: Never Forget Rule No. 1.

Mr Buffet is being a little flippant here, and even the great investment master has lost money at times on individual investments. However, overall he has not lost money … and this is the same approach that Slack Investor is trying to emulate. It is impossible to completely avoid losses, it is just part of investing, and there is no use beating yourself up about a loss when it happens … However, you can limit losses by using stop loss levels … and, with Slack Investor Stop Loss rules … they should be limited to around 20% (there may be some slippage!.

I have updated all Index pages and the Portfolio page.

Banks … If you must!

Slack Investor has been banging on about the efficiency of online accounts as a place to park your savings (here and here) but my life is also cluttered with other banking relationships – but each of these accounts are first thoroughly researched.

This sounds a bit Un-Slack but banks don’t want you to really think about your accounts, they want you to accept this banking relationship in a benign way as they clip the ticket on every transaction. But, with a bit of thought, you can save some money … and it is much better in your pocket than theirs.

Firstly, Online accounts, everyone should have one as this is the most efficient and flexible way of saving with no risk. Try InfoChoice for a selection of accounts – although some institutions ask you to set up another transaction account with them. At the moment, it is difficult to go past RaboDirect who have a juicy base rate of 1.9% and they link to your current transaction account. Make sure you look at the base rates as the “honeymoon” rates often expire after a few months.

Transaction accounts, these are the busy accounts that you usually have your pay go into and they have good online access and come with a debit card or perhaps pay wave. These accounts usually pay little or no interest and sometimes have monthly fees (If so, … avoid these like the plague!). Make sure you always use the no fee ATM’s or eftpos for getting cash.

Credit Cards, this is where it gets interesting and where banks get a lot of justified bad press ie., Greedy Banks. The current average credit charge rate is 16.92 percent in an environment where the Reserve Bank has set the cash rate at 1.5 percent – I know that there must be a margin … but this is ridiculous! Then there are the credit card transaction charges at the retail level (The ACCC reports them at 1-1.5 percent for Visa and MasterCard, and between 2-3 percent for an American Express card). But there are ways to avoid the hook.

Golden Slack Investor rules:

Be nice to your mother.
Always … Just Always … pay off your credit card every month to avoid these inflated interest rates.
Ask at the point of purchase what the credit card transaction charges will be – explore alternatives to avoid these charges eg, eftpos

I don’t really blame banks… they are just companies that try to do the best for there shareholders. I received a great bit of advice from a seasoned investor 15 years ago …

Don’t complain about the big banks … just close your accounts and make sure you are a shareholder!

I took this advice and, where practical, moved my custom to the smaller banks and credit unions who were working a bit harder for their customers. Owning the big banks have been a profitable trade up until now, especially when you consider the fat dividends that pop up twice per year – Much better than bank account interest!

Due to their privileged position in the Australian economy, I am sure that big 4 banks will continue to be profitable, but they face a few headwinds now and growth will be difficult – They are out of the Slack Investor portfolio for now.

However, the first bit of advice remains true, engage with your banking – look at comparison sites like InfoChoice or Finder The smaller banks, mutual banks, and credit unions are still offering the best deals – make sure they have free ATM access, and some way of doing the occasional face-to-face transactions.

Just fill out a few forms, get some ID certified with a JP, scan … and join the banking revolution!

May 2017 – End of Month Update … and FHSST!

Slack Investor remains IN for US, UK, and Australian index shares.

Despite a bad month for the Australian index, the Slack Investment Cycle returns for the US, UK and Australian markets are 141.0%, 12.7% and 8.9%, respectively.

Extract from the ASX Index Fund (STW) May 2017 – Incredible Charts – More detail on the individual Index Chart Pages

May 2017 still finds the monthly price range bar is well above the 10-month moving average in all markets (This is the last bar on the far right of the charts on the index pages – and it is above the black wavy line that represents the 10-period moving average). This is Slack Investors comfort zone … so no action again this month.

For more information on parameters such as progressive gains, try the Slack investor ASX Index, US Index and UK Index pages for updated details – and a look at the charts. Next end of month update on the index charts will be early in July.

FHSST … First home super saver scheme

Slack Investor has probably gone a little early on this as, although announced in the 2017 budget, it is still a twinkle in the government’s eye as the legislation is still to be presented to the quite fickle senate and passed as law. But, it is a sensible proposal that should give first home savers in Australia a bit of a kick along if passed.

The scheme opens up the great tax-saving vehicle of salary sacrifice. Salary sacrifice is not normally on the radar for young first home buyers as it is normally associated with saving for your superannuation – and locking away your money for decades. FHSST lets you save up to $30000 for individuals ($60000 couples) – and lets you access your money when you buy your first house.

There is a nice calculator and graph here provided by SCOMO Someone on $60000 who puts $10000 per year into the scheme would have $25578 saved up after 3 years. This is a bonus of $6239 as measured against just putting the savings into a bank.

For those who are young and saving for their first home … hope for a quick legislative passage and get on it! … Its really dope!

Sometimes What You Don’t See is Really Important!

Especially when the thing you don’t see is your money!

I know things are difficult out there … rents are high, things break, bills keep coming in, and everything seems to be going up – except for your wages. But, if you can have the discipline to save even a little bit of your money, your wealth fund will be able to establish some roots … and this start is a huge and necessary step to financial independence.

Through experience, Slack Investor knows that it is easier to save money close to the source – if you can quarantine some of your income at the time of payment, – all the better! Start up an online, no fees, bank account and tell your boss that you want a portion of your pay put into this. If your employer can’t do this, then set up a direct transfer from your wages bank, the day after payday, to your online savings account. It is done … you are on your way.

In the parable from the financial classic The Richest Man In Babylon, the rich man Algamish passes on the secret of his wealth to the financially challenged scribe Arkad –

“I found the road to wealth,” he said, “When I decided that a part of all I earned was mine to keep. And so will you.”

Algamish suggested at least 10% of your wealth was to be put aside – and Arcad, with his mentor’s help, also became a rich man in Babylon. Arcad was not lazy with his money and understood the power of money and time through compounding interest …

“Then learn to make your treasure work for you. Make it your slave. Make its children and its children’s children work for you … Invest they treasure with greatest caution that it may not be lost.”

Back in the real world, and far, far from Babylon … So many Australians have built their wealth through real estate. Increasing land values have helped this (Especially in Melbourne and Sydney) … but a big reason why home ownership is a vital stepping stone to wealth is that the banks will lend you 80% of the asset value (If you satisfy their income tests!) … and you are “forced” to quarantine your monthly loan repayments from your spending. This is “forced” saving and most homeowner’s, up until now, have found a way to make these payments each month. Business Insider quote a Standard and Poor’s report of an Australia wide loan delinquency rate of only 1.29% for January 2017. This figure will most certainly rise as we go into an interest rate increasing regime – but that’s another story!

Salary sacrifice into superannuation is another way of putting a portion of your wages aside and “paying yourself” in a tax-advantaged way. This strategy has great benefits for older folk but, … this has little appeal if you are 40 years from retirement.

But wait … Hidden in SCOMO’s 2017 Australian budget there is a tantalizing offer to the young home saver who wants to quarantine a bit of money for their future wealth … The First Home Super Saver Scheme. The unfortunately named, deflating sounding scheme has the acronym – FHSST … and will be discussed next post.

Good Debt and Bad Debt – SCOMO you Genius!

Slack Investor doesn’t often comment on the political scene but in Australia it is the yearly budget week and it always pays to keep an ear out for what our politicians are up to. The Australian treasurer Scott Morrison (or SCOMO to the politically aware dudes) presented his budget yesterday with the usual media fanfare. A good summary here … there was a lash at the banks with a new levy on liabilities for the big 5 (Popular with everyone except banks!). The banks took a hit in the share price today … but Australian banks are very good at spreading the costs back to the customers and I am sure that their profits will continue. There was lots of other stuff, putting out a few political fires, bash the bludgers, etc. Of worthy note is the funding of the National Disability Insurance Scheme (NDIS) with an expansion of the Medicare levy … a revenue raiser that hopefully will be passed by the senate.

I haven’t been inspired by treasurers for a long time … I would have to go back to Paul Keating (Currency floating, tariff reduction, compulsory super) or Peter Costello (Future Fund) to find more than mere twiddlers (I am talking about you here Wayne Swan and Joe Hockey!). But SCOMO looks to be doing a few visionary things that might help the nation. His real contribution as far as Slack Investor is concerned is his introduction of the terms “Good Debt” and “Bad Debt” to the political landscape.

It can be very wise for governments to borrow, especially while rates are low, to lock in longer term financing and invest in major growth producing infrastructure assets, such as transport or energy infrastructure,” From Scott Morrison ABC Audio

These are concepts that Slack Investor has explored before, in the personal sense. The difference in type of debt is such an important concept and understanding of the difference is fundamental to financial independence. Good debt is debt that you take on to buy assets that hopefully appreciate in value (e.g., Real Estate, Shares, Education) and contribute to your wealth. Bad debt is debt that you take on just to buy, or do, stuff.

While I applaud Scott Morrison for introducing these debt concepts to the masses, when you drill down into some of the infrastructure spending that is being proposed there is some doubt as to whether all of his proposals will benefit the country. Not all infrastructure is good infrastructure.

Although Slack Investor is cynical enough to think that consultants will give you the answer that you pay for, I think that a compulsory cost-benefit analysis should be required before any major government outlay. At least then, the figures would be out there and the debate would begin on the veracity of the analysis.

In researching this post … well, its “kind of” research … Slack Investor found a couple of SCOMO photos that are so good that I want to share them. They are here below for your delight (or fright)!

A bit of last minute adjustment ….SCOMO and the Former Prime Minister and renowned onion eater, Tony Abbott – From WixxyLeaks

Put another bit of coal on the fire! Good Idea Scott??? A brilliant, but disturbing, photomash from GeorgeBludger on twitter

2017 April – End of Month Update

Slack Investor remains IN for US, UK, and Australian index shares.

April 2017 has seen rises, in the US and Australian markets and a dip in the UK Index. So far, the Slack Investment Cycle returns for the US, UK and Australian markets are 141.0%, 7.6% and 12.0%, respectively.

Bull markets are a funny thing – and there is no doubt that all markets that Slack Investor follows are in various stages of a bull run – they are comforting as the Slack Investor can congratulate himself on what a stock market genius he is (Ironic comment!) – And yet, I can’t help but feel a sense of unease that things have been “too good for too long”.

Looking at the index chart pages, I get the feeling that it has been a long time since my stop losses have been adjusted upwards in the UK and ASX markets – and this will have the potential to erode any gains should the markets fall suddenly. However, I am comforted that the Slack Investor monthly-decision based method is tried and true and has brought rewards in the past … so I’m staying the course … the objective Slack method is designed to keep you in the markets as long as possible and only withdraw from the fray during a major downturn.

I am also comforted by the fact that we frail humans have behavioural biases, we lack patience and we want to tinker with things! Although Slack Investor is unable to track down the original source, an often quoted study by Fidelity (e.g., Business Insider) investigating the Fidelity trading accounts between 2003 and 2013, found that its best performing accounts were the inactive ones – Either owned by people who had forgotten that they had an account, or by dead people!

The Slack Investor does not recommend complete inaction though – but trading less has its merits.

While it is fresh in my mind I will drop in another example of the fine New Zealand experience below…

Day 3 Milford Track NZ – Slack Investor’s corpulence is almost eclipsed by the magnificence of Sutherland Falls. Reminder … must exercise more often!

For more information on parameters such as progressive gains, look on the Slack investor ASX Index, US Index and UK Index pages for updated details – and a look at the charts. Next end of month update on the index charts will be early in June.

Superannuation … Engage! – Part 2

You have been busy (and definitely not Slack) and gone through the paperwork that combines your super funds into one fund that you will keep for your working life. You have probably found an Industry Super Fund provider with established performance and low fees … Sorted!

Slack Investor is proud of you!

However, a little more work is required. The default investment option for most funds is called “balanced” – that sounds pretty cool – who wouldn’t want to be balanced! Generally Balanced options comprise 60-70% in growth assets and 40-30% in income assets.

The options that your fund may offer you are … in terms of increasing risk are

Cash – Invests 100% in bank deposits or other ‘capital guaranteed’ products.
Conservative – Around 30% in shares and property with the majority in fixed interest and cash.
Balanced – About 70% in shares or property, and the rest in fixed interest and cash.
Growth – At least 85% in shares or property.

If you are young … go for Growth, or High Growth … every time! Your super will be invested for 40-50 years and this is plenty of time to ride a few bumps that Growth assets such as shares and property can sometimes throw … Embrace risk and ride these bumps …. It is a good lesson to realise that the beautiful dance between risk and growth must be part of your investing life – Without risk, it is impossible for your investments to grow substantially.

Depending on your time frame, your tolerance to risk will vary. There are good reasons for someone approaching retirement to step back from a growth at all costs investment strategy. But, if you are just starting your working life, and want to grow your superannuation in a meaningful way … time is on your side … and risk is part of this process …

Australian Super have crunched the numbers and found that

YOUNG workers choosing “low risk” investments for their superannuation may be up to $170,000 worse off

The appealing sounding “low risk” options mostly deliver returns not much higher than inflation … And, we are not interested in just tracking inflation … we want growth!

If your superannuation amount is low and you want to give it a bit of a boost, and you earn less than $51,021 (2016/2017 year), the Australian government runs a co-contribution scheme that will reward you on a sliding scale – If you earn less than $36,021, the tax office will automatically kick in a maximum $500 for a $1000 after tax contribution to your super fund – This reward gradually tapers to zero as your income approaches $51,021. This is a pretty good return for your investment!

Grandparents and parents please note – if your wonderful offspring have a part-time job and a compulsory super fund – and you have a windfall that you would like to pass onto the next generations that cannot be frittered away on teenage pleasures – I am reminded of the fantastic George Best quote here.

I spent a lot of money on booze, birds and fast cars. The rest I just squandered.

Despite the wisdom of George Best, a gift of $1000 that would go directly to your loved one’s super fund would attract this govt co-contribution and be a great lesson in the benefits of compounding interest.

Superannuation … Engage! – Part 1

Most Australians, particularly young Australians, rarely show interest in their superannuation(retirement)fund. I can understand this when you are just starting your working life and your experience with super is just to see a slab of your pay earmarked for some obscure fund that you wont be able to access until you are almost fossilized at the age of 60.

However, it is time to engage … our super fees are too high in Australia … and a lot of the problem is the design of the system … and apathy. The Australian compulsory superannuation system is much envied – However, it could be improved – your default fund is decided by your employer and this, annoyingly, could change with each new job – it is time to take control!

According to the Super Sting report put out by The Grattan Institute, Australian’s pay $21 billion a year in super fees. Australians pay fees at almost 3 times the rate of other OECD countries. The report states

… a 30-year old Australian today will have his or her super balance reduced by almost $250,000 in fees (in today’s dollars) at retirement!

This is too much! Set aside an evening where you hunt down the latest super statement from your fund and do a bit of google research. I would throw in a glass of wine … but that’s just me!

Sure … there is a delay in getting your super … but it is your money, why give to the bloated financial industry!

Many super funds ask you to pay fees of up to two per cent per year to have your compulsory superannuation ‘managed’ However, with a tiny bit of effort, it is possible to restrict your super fees to around 1% (or less!) per year. This means a person with a fund balance of $50,000 could reduce their fees from around $1,000 per year to less than $500 – just by filling out a few forms .. the whole process is outlined on the ASIC Moneysmart site – I will borrow and paraphrase these steps …

Choose a fund – The Slack way is to let someone else do the legwork for you and go to the independent site SuperRatings – they list a top 10 funds (I have shown the top 5 – over a 5-year period below). Note that on this trawl, they are all Industry funds. Retail funds usually have lower returns as they have higher fees.

TOP 10 RETURNS AS AT 28/02/2017
Rank	Fund Investment Option	Return	Return Period
1	HOSTPLUS – Balanced	10.80%	5 year
2	Cbus – Growth (Cbus MySuper)	10.66%	5 year
3	UniSuper Accum (1) – Balanced	10.56%	5 year
4	AustralianSuper – Balanced	10.54%	5 year
5	CareSuper – Balanced	10.54%	5 year

Don’t get carried away with small differences in returns but, as well as previous returns, take a look at the other important factor, yearly fees – RateCity has sponsorship deal with some super providers, but their listing on performance comparison here shows typical yearly fees on $50k balances – If you can get fees $500 or below (<1%), you are doing OK.

Check your insurance cover – Income insurance is usually a good idea, and this is a separate component to your fees- life often can sometimes throw up something unexpected and a basic policy might help you out in times of trouble. For older folk … near retirement with equity in your house … this insurance is not so important.
Open a new account – Contact your proposed new fund and set up an account – no upfront transfer of money is required … this will come later. Ask them for all details to tell your employer – Choose well … and this will be your super fund for your working life.
When your new fund is established, tell your employer – Make sure they know where to pay your super and make sure you have your new account number. Your employer will have to enter these detail in the payroll software- Keep this fund for ALL of your jobs when you fill out your employee information forms!
Rollover super to your chosen fund – This is simple if you have only only one existing fund – your new fund will have a form that you can use to request a rollover from your existing fund. OR, if it is complicated and you have several funds going, you can combine these online through myGov,

There is more to say on this topic … stay tuned for part 2. For more information take a look at the ATO’s keeping track of your super page.