Slack Investor | How to invest successfully without too much effort

Advice for a young man … and June 2023 – End of Month Update

I was recently delighted when my 14-yr old nephew asked me what I thought he should invest in with his earnings from his part-time jobs.

Firstly, it is a compliment to an old bloke to be asked anything, and secondly, it is testament to the financial maturity of this fine young man that he would be thinking about the world of the share market while still at school.

If he was older and in a steady full-time job I would advise he automate his savings as much as possible and lash into index funds via a platform such as Stockspot, Pearler, Vanguard Personal, or Raiz)

His first investment would be in the order of a few thousand hard-earned dollars from part-time jobs. It is vital that the investment has good prospects and unlikely to lose money over a 5-yr period (no guarantees though!). Given that he would not feel the need to access the money for 5 years (hopefully longer!)

For a first investment, I would add the criteria that it should be a well-known Australian company that might appear in the news occasionally and remind him that he is a part-owner … and an investor!

If he was already 18, it would be “off to the races” and we would immediately set up a broker account in his own name and he would begin to experience the magic of being a shareholder. Being under 18 complicates things a little as minors are not allowed to directly own shares- we need to enlist his parent’s help.

If the parent already has a broker account the best way to start is for the parent to buy the shares on his behalf. When he turns 18, my nephew can start his own account with a broker (e.g. Self Wealth, Commsec, Pearler) and the parent can use an off-market transfer (get the form from the broker) to get the shares into my nephew’s hands as a “gift” including any dividends earned. During this brief holding period, any dividends and any capital gain will count as taxable income in the parents name – but this is a small price to pay to tap my nephew’s enthusiasm.

Alternatively, you could open a broker account in their name (as the trustee for “Nephews name”). The process is a little more complicated and is explained in detail by SelfWealth.

The Nuts and Bolts of Stock Selection

Naturally, I would address this problem in a methodical way and set up a list of Slack owned companies – I couldn’t recommend a company that I didn’t own myself. Some of my favourite stock metrics are gathered from the excellent Market Screener site on the financials page for each stock.

My number one metric for looking at companies is their Return on Equity (ROE), estimated for the year 2024 – Slack Investor is looking forward. This gives me an idea about whether a company is making an investment dollar grow. Higher the better, I start getting curious about a company when ROE is above 15%.

The projected Price Earnings ratio in 2024 is next – I don’t like the P/E Ratio to get above 40, as this indicates the current price of the company is 40 times its earnings (expensive) – but some exceptions are made if the company is growing fast (High ROE). The yield (dividend) is not that important to a young investor, it is the total growth that counts.

Stock	Symbol	2024 ROE	2024 P/E	2024 Yield	Price 30/06/23	% Price below consensus
CSL Ltd	CSL	18%	30	1.5%	$277.38	-18%
Wesfarmers	WES	30%	22	3.9%	$49.34	Fair Value
Coles	COL	31%	22	3.9%	$18.42	Fair Value
Altium	ALU	32%	41	1.9%	$36.92	-6%
Macquarie Bank	MQG	13%	14	4.2%	$177.62	-10%
Car Sales	CAR	10%	28	2.8%	$23.82	-3%
RealEstate.com	REA	29%	41	1.3%	$143.03	-7%

Analysis of some Slack Investor owned stocks using the projected Return on Equity (2024 ROE); price earnings ratio in 2024 (2024 P/E); 2024 Yield; and the current price (30 June 2023); and current discount from the average analyst perceived value – marketscreener.com – Financials Tab

Looking at the figures, even though the stock price of CSL hasn’t really gone anywhere in the last 3 years, it would be my first pick as it is currently 18% below its fair value price (by a consensus of analysts). It is such a strong Australian company that really thinks of the future by continuing to increase its spend on research and development each year.

Wesfarmers (Bunnings, K-Mart, Officeworks, etc) and Coles look OK too because of their high Return on Equity (ROE) – they also have the benefit that you can continually pop in to see how your business is going. Altium has languished in price this last few years but remains a great company for the future – if my nephew was interested in the “tech” space.

This isn’t advice, Unless, of course, you are my nephew!

June 2023 – End of Month Update

The financial year closes and looking at the 12-month charts for FY 2023 – Slack Investor concludes … “It was better than last year”!

Slack Investor remains IN far all followed markets. The ASX 200 (+1.6%) and FTSE 100 (+1.1%) drifted slightly upward for the month. It is boom-time in the US with the S&P 500 rising 6.5%. The US index had moved more than 15% above its stop loss, so I have moved the stop loss upward to 4048.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.

The Long View

“Astronomie”, Georg Leopold Hertel and François Boucher, 1750 – 1778 – Rijksmuseum, Netherlands

What exactly these angelic cherubs are up to in this etching will remain a mystery to Slack Investor, but he would say that looking at things from a distance is a worthwhile trait in the stock market world. Slack Investor is currently in Europe on holiday and the geographical distance and time zone shift have helped him take more of a holiday from the markets … and just let them get on with it – without interference!

Take the long view

There are some scary headlines and plenty of volatility on the stock markets with worries about inflation and international bank collapses. Slack Investor will just pass on some sage advice. Here is the secret to being a good investor …

Don’t get caught up in what happens in three months, six months, or 12 months. It’s about the next five to seven years.
Paul Taylor, head of investments for Fidelity Australia and Portfolio Manager for the Fidelity Australian Equities Fund

Paul Taylor is no mug … his Australian Equities Fund is of the managed fund variety and, despite a slug of 0.85% p.a. in management fees, his fund has kept pace or slightly bettered the performance of the ASX 200 Accumulation index over the 5 and 10-yr periods. Even though the managers of the fund appear to know what they are doing, the difficulty of beating index funds over every time period is shown by the negative relative performance over 1 and 7-yrs.

Fidelity Australian Equities Fund performance compared to the ASX 200 Accumulation index – up to the end of February 2023.

Now, Slack Investor completely agrees with Mr Taylor, when investing in equities (shares), you should be locking them up for at least 5 years so that any volatility will be swamped by the beautiful long-term march of increasing value for Australian and International Shares. See the latest Vanguard Long Term Chart to see what I mean.

Slack Investor is still “pretend hurting” from his own last year’s (FY22) annual Slack performance (-14.3%). However, he realises his 5-yr and 10-yr performance is the critical measure for his Slack Fund. As these returns p.a. (13.5% (5-yr) and 15.2% (10-yr), are comfortably above benchmarks, I have reconciled the poor one year figures as just part of the volatility of owning mostly growth shares.

Contribute regularly to your savings

Whether adding to your super, or investment savings, the best way to do this is to add regularly, without even thinking about it. Set up an automatic personal deduction from your salary to your super – or automatically contribute to your savings through a vehicle that is in sync with your risk tolerances (e.g. Stockspot, Pearler).

As my super was accumulating, it was mostly in broad-based index funds (Australian and International). My other investments were mostly in individual companies.

While it’s possible to beat index funds, it’s not easy to do over the long run … and as it isn’t worthwhile for most of us to try.
Paul Samuelson, American Nobel prize winner in economics – from johncbogle.com

Slack Investor has some exposure to index-type ETF’s but continues to dabble in individual companies. Despite the above warning, Slack Investor will continue to “have a crack” at stock selection and portfolio management – but only while his long-term performance still stands up.

Things a Financial Advisor might tell you … and May 2023 – End of Month Update

Slack Investor has blogged about financial advice before – and although an advocate of trying to do as much as you can by researching finance world yourself, it can be a very difficult journey to be across all the fields of saving, mortgages, investment loans, insurance, superannuation, taxation, and investment.

Most people want financial advice but the problem is that it is so expensive. MoneySmart.gov.au outline a case study where “Rhett” has $400 000 to invest – He might be hit with fees of $13 600 in his first year of advice . These fees include a Statement of Advice and Insurance premiums and layers of platform and investment advice fees.

Where to invest your money is the easiest thing to sort out for yourself – with the key words being diversification and low fees. There are cost-effective ways of investing in a diversified way that will suit your risk tolerance without involving a financial advisor (e.g. Stockspot, Pearler). But some people (Not Slack Investor Readers!) need a trigger to just start investing. Finance world is much more complex than just investing your money. Slack Investor can see the need for finance professionals

Things a Financial Advisor might tell you

Firstlinks have trawled the data to determine the most recommended strategy used by financial advisers – the most common of these are listed below.

Let’s just have a look at some of these in more detail.

Rollover Your Super – “Rolling Over” your superannuation is just a way of describing the transfer of your “protected” super into another protected super fund. Slack Investor readers will be all over this one – Of course it makes sense to put all of your super with one provider to avoid multiple administration fees. Combine your super into one fund – preferably an industry fund (lowest fees) with a good 5-10 yr performance record.

Retain Your Super – This is again good advice for the long-term accumulators of wealth. Unless under extreme hardship, resist all attempts for early access to your super. During the COVID-19 outbreak, $4 billion was paid out to 456,000 people under the early super access scheme. This would have helped distressed businesses and individuals in the short-term but may not have been a great idea in the longer term.

Super Contributions – This is a more complicated area and, it might be good to have advice on when, and by how much ,you should boost your super contributions above those which are compulsory. This is tricky when you have competing loads on your take-home pay (Family, Mortgage, etc). Slack Investor was big on maximizing his super contributions once he had a firm grip on his home mortgage.

Apply for Insurance – When you have a family or debts (home loan?) to cover, life and disability insurance is a good idea. You don’t need an advisor to tell you this. Insurance through your super fund is usually the most cost effective way to do this.

Estate and Aged Care Planning – This area is really complicated for the layman. Professional Advice, or much research, needed.

Commence, Rollover, Retain Pension – You may need advice here if planning to mix aged-pension and super to fund retirement. If there are no aged-pension issues, Slack Investor believes that it is best to start an account pension (from your super) as soon as possible and re-contribute any surplus funds as non-concessional contributions.

Commence, Rebalance Investment – An old truth – Best time to start investing? 20 years ago. Next best time to start investing? Now! Rebalancing can be done automatically with cost-effective platforms e.g., Vanguard Super, Stockspot.

What Types of advice Do You Really Need?

The current financial advice system is complicated by well-meaning regulations that are in dire need of reform. In 2022, the Australian Treasury provided a consultation paper seeking feedback on changes to the regulatory regime that would allow financial advice on specific matters without the obligation that the advisor should know everything about your financial situation – No need for the expensive Statement of Advice (SOA).

Ideally, in a future world, you could get advice at various stages in your life from finance professionals at an hourly rate – perhaps in the same way you would consult a medical specialist about a problem. For Instance

Early/Mid-Career Advice: Am I on track with my savings, super contributions and retirement plan? What strategies should I employ to achieve my goals?
Pre-Retirement: Am I ready? Taxation Issues? Aged-pension/Super mix?
Estate and Aged Care Planning: Complicated – Many issues to discuss here.

Alternatively, you could just turn your financial future into a hobby (Like Slack Investor did), and use the internet and books to educate yourself.

May 2023 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. It was a dreary month for the Slack Investor followed markets. The ASX 200 performed poorly this month – down 3.0%, and the FTSE 100 even worse – down 5.4%. The S&P 500 was flat (+0.2%) for the month.

In this month of turmoil for stock indexes, the Slack Portfolio did quite well. This is because it is heavy with technology stocks that are having a moment in the sunshine. The Nasdaq 100 index was up 7.7% for the month of May.

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

Alignment

Four of the planets that are visible to the naked eye – Saturn, Mars, Venus and Jupiter were aligned on **April 24, 2022** at 4.40am visible from Southbank, Melbourne – SBS Australia

We have 8 planets in our solar system (sorry Pluto!) all whizzing around the sun at different rates, occasionally they “align” when the planets line up or appear close together in a small part of the sky .

Planetary Alignment is a special thing, depending on which planets are involved – and their order. Sadly, Slack Investor wasn’t paying attention when 4 of the 5 planets visible to the naked eye (Mercury, Venus, Mars, Jupiter and Saturn) appeared in a line around the world on April 24 2022.

The bright string of lights in the morning sky (in April 2022) is thought to be a one-in-1000-year event.
Australian Geographic

Slack Investor is coming to the planetary alignment party very late and is now setting his sights on September 8, 2040, when five naked-eye planets (Mercury, Venus, Mars, Jupiter, and Saturn) will be within a circle of 9 degrees in the sky.

Investing alignment

Slack Investor may be a poor astronomer but one of his skills is noticing when two of the most important attributes in the stock market have an alignment – Value and Momentum.

Value investing involves looking at stocks that appear to be trading for less than what they are worth using a value screener like “book value” or the Price/Earnings ratio. Slack Investor likes to use the Cyclic Adjusted Price Earnings Ratio (CAPE) as a broad indicator of value – the lower the CAPE, the better the value.

Momentum investing just uses charts and indicators to pick out the current movement of a stock. Based upon the theory that – If the trend is upwards … it is likely to continue upwards. This is tricky though … the trend is your friend … until it isn’t!

Because trend trading is difficult, I always like a bit of assurance or alignment with value. Ideally, I like value and momentum in a stock before parting with Slack cash.

Value

It has been 6 months since I produced a set of index value charts based upon CAPE to look at how the markets are travelling.

As with individual companies, the whole share market will oscillate between overvalued and undervalued. Slack Investor has written about the Cyclically Adjusted Price to Earnings ratios (CAPE) which use ten-year average inflation-adjusted earnings. By plotting this CAPE over a period of time, we can look at how the whole sharemarket is currently valued in terms of historical data.

Using monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the CAPE values. A “fair value” zone is created in green where the CAPE is within one standard deviation of the mean.

Historic CAPE ratios for the ASX 200 – From 1982 to April 2023– Click the chart for better resolution.

Historic CAPE ratios for the FTSE 100 – From 1982 to April 2023– Click the chart for better resolution.

Historic CAPE ratios for the S&P 500– From 1982 to April 2023 *– Click the chart for better resolution*.

From the above, The ASX 200 is right on fair value (1% above av.) and the FTSE 100 is cheap (5% below av.). Both are worth looking at for the moment as their CAPE values are at, or below their long-term averages. The S&P500, is still in the “Fair value” range, but at 20% above the long term average – so, no bargain here.

Momentum

There are lots of stock indicators that track momentum. Slack Investor has blogged about The Coppock Indicator before. It has had an incredible track record in signalling the end of a “bear market”. The signal (Green Arrow) is triggered when the indicator (shown in the lower screens below as a white line) bottoms from under the zero line and then slopes upwards.

Monthly charts of the ASX 200, FTSE100 and S&P500 together with the Coppock Indicator (White Line) in the lower section of each chart. The green arrows show the “bottom of the market” predictions using the Coppock Indicator. The red arrows show a possible time to sell – Click the chart for better resolution – Incrediblecharts.com

The ASX 200 (Since 31 Jan 2023) and the S&P 500 (Since 31 Mar 2023) are showing signs of recovery from the bear market with the is well into the Coppock recovery cycle. The FTSE 100 is also showing signs of recovery, but as the Coppock indicator did not get below the zero line, this is not a proper Coppock reversal.

Alignment of Value and Momentum Together

Slack Investor will again rant about how market timing is difficult and that the best time to buy stocks is “all the time” – by automating your investments so that their is no decision inertia. Use dollar cost averaging.

However, the Coppock Indicator has been reliable so far in predicting stock gains. This is not advice, but the ASX 200 currently has the alignment of both value and momentum indicators. Alignment is good … If I wasn’t already fully invested, I would have a crack!

General Practitioners (GP’s) in Australia … and April 2023 – End of Month Update

Slack Investor is a great believer in writing about experience and a few (fortunately) minor health matters has had him recently exploring Australia’s health system. In Australia, the General Practitioner (GP) is usually the first port of call if you have a health problem and of Medicare will fund a portion of your costs for a consultation. Your relationship with your GP is an important one and it is vital that you feel comfortable with your GP’s manner, knowledge and skills. There are two tiers of GP pricing in Australia.

Bulk Billed – where there is no extra consumer payment required if you have a valid Medicare card.
Mixed Billing – where patients will pay a a bit extra in addition to the Medicare allowance

Bulk billing doctors are becoming harder to find as the rate of bulk billing has fallen to its lowest level in 13 years . According to government figures, it was 80.5% in the 2022 December quarter. Though this figures is likely to be “grossly inflated” as many practices have charged a separate eftpos transaction at the desk and this does not appear in Medicare figures.

What should happen is that either the patient is bulk-billed and pays no money – or they are charged a private fee, a portion of which is rebated by Medicare directly into the patient’s bank account.
Dr Margaret Faux, Health Insurance Law Academic

Levels of bulk-billing are probably closer to 40% as shown in the recent survey by The Age. In answer to the question “Does your GP Bulk-bill or charge you a gap fee?”

Survey results from the Resolve Political Monitor conducted by The Age

This Age poll is in line with results by an excellent organisation called Cleanbill that are driven by a mantra that Slack Investor wholly agrees with …

” … healthcare is at its most accessible when you can see all of your options and their costs before you’ve made a booking.”
The mission statement for Cleanbill

The Cleanbill site is easy to use for locating GP’s in your area and transparently gives their total fees for a standard, or a long consultation. Once you have narrowed your search, you can usually make a booking straight from the site.

Only 42.7% of GP clinics serving nearly 18 million Australians
bulk bill (charge no out-of-pocket fee to) all patients.

At the 57.3% of GP clinics that charge an out-of-pocket fee the average extra cost for a standard, 15-minute consultation is $40.25 (out of a total cost of $80).
Australia-wide survey by Cleanbill – January 2023

The decline in bulk billing is not the GP’s fault as practice costs have continued to rise and the Medicare rebate has not kept pace with the rise in these costs. In 2013, the rebate was frozen for 6 years – and, even last year, though inflation was 6.1%, the Medicare rebate was only increased by 1.6%. The chart below shows how the rebate has failed to keep pace with inflation (CPI) and average weekly earnings (AWE).

The Medicare GP rebate has failed to keep pace with inflation (CPI) and average weekly earnings (AWE) – From ochrehealth.com.au

… more than half of GP practices (55%) plan to reduce bulk-billing and increase gap fees this year
2023 GP Insights Report

Are we heading down the track to a US – style system?

Slack Investor has lived in the US – and hopes not! … and, is pleased that the new Australian government is putting a bit of thought and money into this problem with an announced $2.2b injection of funds into Medicare – no detail yet.

Now Slack Investor does not want a completely “free ride” as he realises that healthcare must be paid for. Even in the much admired Scandinavian health systems there is usually a co-payment associated with a visit to a doctor of $20-25 AUD.

In Australia, many patients pay hundreds of dollars for non-GP specialist consultations, and $40–$50 out of pocket for GPs.
Dr Jillian Farmer – Insight Plus

So perhaps it is just a matter of nudging the co-payment down a bit by increasing the Medicare rebate, and some other reforms – all will be revealed on the Australian government budget night – 9 May 2023.

Slack Investor is hoping for some progress as the Australian Healthcare system is generally good … but could be better. In the meantime, if you are looking for a GP, use Cleanbill to help you find one.

April 2023 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. It was a positive month for the Slack Investor followed markets. The ASX 200 up 1.8%, the S&P 500 up 1.5%, and the FTSE 100 powering on, and up 3.1% for the month.

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

The cost of retirement is increasing

A bloke with a barrow of mutilated currency circa 1910

Every quarter, the economic boffins at ASFA (Association of Superannuation Funds of Australia go to the trouble of crunching the numbers on what yearly income they think is required for a “comfortable retirement”. They assume that the retirees own their own home outright and are relatively healthy. In one year, due to inflation, the comfortable retirement amount has increased by 7.6% , or $4920, to $69,691 for a couple (Dec 2022 ).

Comfortable lifestyle (p. a.)	Modest lifestyle (p. a.)
Couple $69,691	Couple $45,106
Single $49,462	Single $31,323

ASFA calculated annual retirement requirements for those aged 65-84 (December quarter 2022) for both “comfortable” and “modest” lifestyles

ASFA’s calculations are very detailed, but notably these annual incomes do not include any overseas travel – depending on your accommodation standards and length of journey, this could easily require another $20K.

Their latest December 2022 report notes that price rises have occurred for most spending categories. In the last four quarters,

Food rose by 9.2%
Bread 13.4%
Meat and seafoods 8.2%
Milk 17.9%
Oils and fats 20.8%
Gas 17.4%
Electricity 11.7%
Household appliances 10.2%
Automotive fuel 13.2%
Domestic travel and accommodation 19.8%
International travel and accommodation 15.9%

ASFA also helpfully calculate a lump sum that you will need to supply this income – with the assumptions that the lump sum is invested (earning more than the cpi) and will be fully spent by age 92. Let’s aim high and just concentrate on the comfortable retirement – the “modest” retirement lump sum amounts are much lower (around $100K) as they assume supplementation from the aged pension.

Savings required for a comfortable retirement at age 67
Couple $690,000
Single $595,000

ASFA calculated lump sum t requirements for those aged 65-84 (December quarter 2022) for a “comfortable” lifestyle

How to Cope with Inflation

There is just one simple way – you must be invested in appreciating assets that keep pace (or exceed inflation). Appreciating assets tend to go up in value over time. This is pretty vague, but if you are unsure about an asset, try and find a price chart over a 10-yr to 20-yr period. If it is going up, it is probably an appreciating asset.

You will always need some amount in cash for day to day requirements and to ride out any investment cycles without the need to cash in your investments at a low point in the cycle.

Knowing the difference between an appreciating and a depreciating asset (e,g cars, furniture, technology equipment, boats, etc) was an important step in Slack Investor’s investing life. I can still remember the day my father gave me “the talk”, that it was OK to borrow money for appreciating assets – I think he was pushing me in the direction of real estate at the time. However, I was not to borrow for a depreciation one i.e. a car, or consumer goods – assets that lose value when you walk out of the shop!

Appreciating Assets

Below is a (not exhaustive) list of appreciating assets. I have left out cryptocurrency deliberately as it has only been traded since 2010, and it is not established yet that it is a long-term appreciating asset.

List of appreciating assets:

Real estate
Real estate investment trust (REIT)
Stocks (Shares) and ETF’s
Bonds
Commodities and Precious Metals
Private Equity
Term Deposits and Savings Accounts
Collectibles e.g. Art

Term deposits and savings accounts might keep pace with inflation (if your lucky!) – but generally do not grow faster than inflation. Slack investor will write about why owning your own home and investing in Stocks (Shares) and ETF’s are his favourite appreciating assets in a later post.

Persistence is hard … and March 2023 – End of Month Update

Salvador Dalí, The Persistence of Memory (1931) – MoMA

Dali’s painting “The Persistence of Memory” has been described as a “surrealist meditation on the collapse of our notions of a fixed cosmic order“. Slack Investor is not gifted in the interpretation of artworks but would “have a crack” and say the work was indicating a lack of permanence, or persistency, that we often associate with everyday things. What Dali called “the camembert of time”.

“The sole difference between myself and a madman … is the fact that I am not mad!”
Salvador Dali

Persistence : (Noun) the act of persisting or persevering; continuing or repeating behaviour – vocabulary.com

Persistency is a great investing quality that impresses Slack Investor – but I acknowledge the difficulty. Standard & Poor’s collect data from the US market on how consistently recent top performing share funds are able to keep producing winning records in subsequent years. The following graphic tracks the funds that were in the top 25% of performers in 2018 – and who stayed in the top quartile in successive years.

The percentage of US funds that remain in the top 25% of funds after a 1, 2, 3 and 4 year period – S&P Research – Not many! – Ifa.com

Over a five-year horizon “it was statistically near impossible to find consistent outperformance.”
S&P Research – Ifa.com

Just because a fund, or portfolio, did well in one year does not mean it will continue to perform well the next year. Slack Investor has found this himself with his best performing stocks often becoming the worst performing in the next year – such is the nature of stocks. The stock market often moves between being overvalued and undervalued – and it is the same for individual companies.

Most active (stock picking) funds do not exceed their long-term benchmarks

Not only do active managed funds struggle to maintain consistency, most of them underperform index funds. We are lucky that there are a group of economic boffins that keep an eye on things in the funds department. They are the known as SPIVA (S&P Indices Versus Active). Since 2002, they have been collecting world financial data and comparing actively managed funds to passive (Index) Funds. The 2022 data is now in and the disappointing theme continues. For Australian Equity (Share) funds, for the 5 and 10-yr horizons, respectively, 81.2% and 78.2% of funds underperformed the S&P/ASX 200.

For International equities, the performance of active funds was worse – Over the 5 and 10-year periods, more than 86% and 95% of funds underperformed, respectively.

The percentage of **underperforming** Australian funds in various categories over a 1-yr, 3-yr, 5-yr, 10-yr and 15-yr period – SPIVA 2022 Report

How to cope with inflation

To keep pace with inflation you must be invested somewhere – so that your investments can grow faster than inflation (cpi) over time (at least 5 years). I will explain in a future article why I prefer shares and ETF’s as the vehicle to do this over other appreciating assets. So, on this path, to be exposed to equities (or stocks) you can either buy

Active managed funds – Roll the dice here as most of these underperform Index funds after fees, but the minority showed some skill over benchmarks over a 5-yr period – but there is no guarantee that they will keep ahead of their benchmarks.
Individual stocks – this is what Slack Investor does – but some experience is helpful here!
Low-Cost Index Exchange Traded Funds (ETF’s) – this is the easiest path, and Stockspot have made the process even simpler by researching the best Index ETF’s in each class.

Exchange Traded Index Funds (ETF’s) for a Portfolio

Stockspot diligently analysed 640 of the largest managed funds available in Australia.

Australian Shares Index ETF

For Australian share exposure, Stockspot recommends the ETF ASX:VAS – as it has outperformed 74.3% of large cap Australian shares managed funds over 5 years with an Indirect Cost Ratio (Management Fee) of 0.1% and an annual return (over 5 years) 0f 9.0%.

Australian Small Companies Index ETF

Here, Stockspot recommends the ETF ASX: VSO – as it has outperformed 63.5% of small cap Australian shares managed funds over 5 years with an Indirect Cost Ratio (Management Fee) of 0.3% and an annual return (over 5 years) 0f 11.7%

International Shares Index ETF

For a swing at the world markets, Stockspot recommends the ETF ASX: IOO – as it has outperformed 97.5% of the large cap global managed funds, available in Australia, over 5 years with an Indirect Cost Ratio (Management Fee) of 0.4% and an annual return (over 5 years) 0f 14.2%.

March 2023 – End of Month Update

After a sparkling January, the calendar year has crawled along in share market gains. But, it’s “dividend season” now – and this cheers Slack Investor up greatly.

Declines this month for the Australian and UK markets (ASX 200 – 1.1%, FTSE 100 -3.1%). Those irrepressible optimists in the US keep powering on, with the S&P 500 up 3.5% – even though this is the most overvalued of Slack-followed markets.

Slack Investor remains IN for the FTSE 100, the ASX 200, and the US Index S&P 500.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed

Live Long and Prosper … Not in the US

Spock from Star Trek with the Vulcan Salute … “Live Long and Prosper” – Paramount +

The Vulcan salutation that Spock would give his fellow Vulcans is a catchphrase of the Star Trek series and a reminder that “living long” in a state of good health, would be a nice thing to achieve.

Slack Investor has been thinking about health lately and his research tells him that good health outcomes are not always just a matter of spending more money. The US is a good demonstration of this point. In an analysis of health data for the 38 OECD countries, though spending nearly twice as much as the average OECD country on health care, the US has the highest rate of people with multiple chronic health conditions.

2021 per capita health expenditure (spending: government + private programs + out of pocket expenses) for OECD Countries – From CNN Health

Money and Healthcare – What’s gone wrong in the US?

“16% of all officially recorded COVID-19 deaths (worldwide) occurred in the US, despite having only 4% of the world’s population”
The Commonwealth Fund

In most countries, using the broad indicator of life expectancy, as health expenditure increases, so does life expectancy. However, the US is an outlier. The populations of countries with much lower health spending than the US enjoy considerably longer lives and better health outcomes with other measures. The interactive chart from ourworldindata.org demonstrates this.

” … the U.S. is the only country we studied that does not have universal health coverage, but its health system can seem designed to discourage people from using services,”
The Commonwealth Fund

Universal Health Coverage (UHC) is defined as everyone having access to good quality health services without suffering financial hardship but this is a complex area and each country does it differently. UHC is usually funded by taxes or access to insurance schemes.

There are many reasons for this disparity with the US and other countries. The American Public Health Association say that improvements could be made by improving access to a UHC system, increasing primary care prevention, and more money spent on social services to support their citizens, rather than “sick care”.

The US has two streams of healthcare, those with insurance (usually tied to employment) and those without. In 2021, 70 million Americans are either not insured, or underinsured. Those without insurance usually get a much poorer health service and yet, in the other stream, the top 5% of spenders are incredibly well serviced and account for almost half of the health spending.

There are lessons to be learned here for all governments – it might mean an increase in taxation, but I would rather have the top ranked Norwegian style of healthcare rather than a US style.

Dying is expensive

Medical spending in the last twelve months of life accounted for approximately 8–11 percent of aggregate medical spending in most countries
2009-2011 Health Affairs study – using data sets from 9 OECD countries

As we get older, we get more expensive to run – more things going wrong! There are high costs associated with dying, as this is often in association with hospital care.

Overall, the average annual health service cost per person for people in their last year of life was 14 times as high as for those not in the last year of life ($24,000 and $1,700 respectively).
Australian Institute of Health and Welfare

It seems that it is not just our last year that is expensive to the health system, One 1993 U.S. study found that 30 to 40 per cent of costs incurred in the last year of life were incurred in the last month of life! Slack Investor calculates this as meaning 3-4% of lifetime aggregate medical spending is spent in our last month!

Cripes … Slack Investor is worried that he might turn up to hospital and some bureaucrat with a clipboard (or AI Bot!) will tell me that they have crunched the numbers …. and it’s just not worth it to admit me.

This deep dive into healthcare has made me determined to take a bit of control. I will try to stay as healthy as possible for as long as possible … better stop here and go for a jog – and have a healthy meal tonight!

Healthcare Haggle … and February 2023 – End of Month Update

Slack Investor’s Dental Shenanigans

Laying in the dentist’s chair recently, I was confronted with the bad news that I was up for a dental implant and this would probably set me back about $8000 – Lucky I was lying down!

After the initial shock, Slack Investor resolved to start treating his interaction with healthcare in the same way that he would treat any other professional service. I have decided to be an informed consumer and take control of the financial side of my healthcare. Lets get some quotes!

An internet trawl and a few phone calls later, I had a quote for around $4000 – dependent on an inspection and a dental scan. After the initial consultation, I asked for a written quotation. The quote was emailed to me and, subject to some caveats about extra costs if any bone grafts were necessary, came in at $4050 – Bewdy, lets go with this. In a classic piece of “anchoring bias”, if someone mentions $8K … and you end up with a price of $4K, this new price feels like an absolute bargain.

In retrospect, I was satisfied with the whole experience and enjoyed the empowering feeling of having some knowledge of the range in costs for a particular treatment. Because I am lucky to be amongst the privileged 55.2% of Australians (June 2022) who have private health insurance extras cover (45.2% of Australians have private hospital cover only), I also claimed a rebate of $1400 through my insurance provider.

Private Health Insurance

The funding of the Australian Healthcare system has evolved into a complex beast – with Medicare being at its foundation since 1984 – but there is also a private system. The arguments for and against taking out private health insurance are well covered by the consumer advocates CHOICE.

Medicare and the public hospital system provide free or low-cost access for all Australians to most of these health care services. Private health insurance gives you choice outside the public system.
The Australian Health System

As well as the Medicare Levy, 2% of your taxable income for most people, there is also the Medical Levy Surcharge which is an additional charge to encourage high earners to get private health insurance. Again, this is a bit complex, but if you are single with a taxable income (plus fringe benefits, super, etc) of greater than $90K, you are better off with private health insurance hospital cover.

The consumer body CHOICE has a calculator to answer if it financially makes sense to get private health insurance – but this is not just a financial issue, it depends on your circumstances and philosophy.

It is also important to know that there are a few areas that private medical insurance does not cover.

GP visits
Consultations with specialists in their rooms
Out-of-hospital diagnostic imaging and tests.

These services are under the umbrella of Medicare and their list of approved services and government subsidies available, the Medicare Benefits Schedule (MBS). If Medicare doesn’t cover the full cost of your treatment you will have to pay the difference, known as ‘the gap’ or “out of pocket expenses”.

Engaging with Medical Specialists

Again, I recognize my fortune in having private extras insurance cover and being in a large city (Melbourne) where there is choice in medical specialists.

Rather than getting a “big surprise” bill, I have resolved to be pro-active and informed when dealing with specialists.

It’s your right to get an estimate of costs from your doctor or hospital before you agree to have treatment. This helps you understand what you might have to pay.
Department of Health and Aged Care

If I think that I am in need of specialist’s attention, before I arrive at my GP asking for a referral, I get into research mode OR, if I haven’t had the chance to do any research, I will ask my GP for an open referral.

The reason for this is that my private health insurance provider has arrangements with some specialists to charge either a “No Gap” or a “Known Gap” arrangement. My insurance provider HCF have, on their member pages, a place where you can search for their preferred specialists in your area. They also have a good guide on questions to ask your doctor/specialist at your first consultation.

Medicare contributes a set amount for each treatment or procedure, as laid out in the Australian Government’s Medicare Benefits Schedule (MBS). For in-hospital treatment, Medicare pays 75% of the MBS fee; your insurer pays the other 25% (provided you’re covered for the service).
Department of Health and Aged Care

For in-hospital services, the Medical Cost Finder is an Australian Government site for estimating your out of pocket expenses for an operation. For example, the results below are for a Knee Replacement in a private hospital that indicate a typical $1600 out of pocket cost.

Output from Medical Cost Finder for Knee replacement in Melbourne

For “out of hospital” consultations with specialists in their rooms, where no private insurance claims can be made, get on the phone and ask the receptionist at a few places for typical “out of pocket” costs before you make an appointment. When you decide on a specialist and feel comfortable with him/her, ask for a written quote with any gap fees for any further work.

For a deeper dive, CHOICE have a number of tips on how to avoid out-of-pocket healthcare costs.

February 2023 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. It was a mixed month for the Slack Investor followed markets. The FTSE 100 is powering on, but both the ASX 200 an S&P 500 drifting south (FTSE100 +1.4%; ASX 200 -2.9%; S&P500 -2.6%).

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

In full financial empowerment mode, Slack Investor set aside an hour and 10 minutes of his valuable time this month to get a better deal on some of his fixed costs. Good Results.

Task	Internet Research Time	Phone Time	Result
Home Loan	15 min	5 min	0.65% reduction in Interest rate – now 4.95%
Car Insurance (comprehensive)	40 min	10 min	Reduced annual payment from $1204 to $1031 ($173 saving p.a.)

ETF Themes … and Dreams

It has become quite fashonable, worldwide, for new ETF’s to be launched onto the market with a “theme”. Robotics, Alternative Energy, Cryptocurrency, Battery Tech, or Artificial Intelligence are just some examples of themes where an ETF provider will bundle a number of companies together with a catchy ticker.

This trend seems to be also happening in Australia. Investsmart has been following the performance of a few of the new Australian thematic ETFs e.g. HACK (Cybersecurity), ERTH (Climate Change Innovators), ACDC (Battery Technologies and Lithium), ESPO (Gaming and eSports), CRYP (Cryptocurrency), CLDD (Cloud Computing) and DRUG (Healthcare). Their results, since the ETF inception dates, are a mixed bag. ACDC, DRUG and HACK outperformed the ASX200, while ERTH, ESPO, CRYP and CLDD have underperformed.

The two main problems with themed ETF’s is that they are generally expensive – have high management costs relative to other broad index ETF’s and, they concentrate risk in just one part of the market – the theme might suddenly fall out of favour e.g. ARKK.

The themed ETF’s generally have management fees of over 0.50% p.a., wheras broad Index funds have fees closer to 0.10%p.a. – Financial Times

In a comprehensive study (over 25 years) of US ETF’s, The Ohio State News concludes that these new themed ETF’s are based mostly on “hype” and they tend to lose value in comparison to the general market very soon after they are launched.

… specialized ETFs lost about 6% of value per year, with underperformance persisting at least five years after launch.
The Ohio State News

Thematic ETFs are often launched near the top of the market when interest in that theme is at a high. As a result, the stocks in the thematic ETF can start overpriced, resulting in underperformance.
Investsmart

In the U.S. of the 277 ETFs that shut down in 2020, one-quarter of them didn’t make it to their third birthday
Stockspot – Why we avoid new thematic ETFs

Slack Investor Themed ETF Record – Not Good

Slack Investor has also not been immune to the “hype” and has bought a number of themed ETF’s, as well as a few broad-based index-type ETF’s. The latter, of which, I am generally happy with their long-term performance. My thinking was to get onboard, in a relatively easy way, to some exotic investment themes.

In the past 5 years I have bought VanEck Morningstar Wide Moat ETF (MOAT), Vanguard FTSE Emerging Markets Shrs ETF (VGE), BetaShares Global Cybersecurity ETF (HACK), BetaShares Glb Rbtc & Artfcl Intlgc ETF (RBTZ), BetaShares Asia Technology Tigers ETF (ASIA), VanEck Video Gaming & eSprts ETF (ESPO), BetaShares Global Quality Leaders ETF (QLTY), Global X Battery Tech & Lithium ETF (ACDC), and Vanguard FTSE Emerging Markets Shrs ETF (VGE).

With hindsight, I can see the trap that I have fallen into. For example, E-Sports. I had read about E-Sports in the press and didn’t know much about them – except that they were popular, and they were the new “thing” – and growing fast. I didn’t know any individual companies in the field, as most of them were based in the US. When VanEck Bundled together a few of the E-Sport companies into a themed ETF, VanEck Video Gaming & eSprts ETF (ESPO) I was excited and bought into it. The trouble was, I was late to the party. As the chart above shows, by the time I entered the market, there was already a lot of hype, and the entry price paid was probably over-inflated.

The BUY-SELL price history of the themed ETF’s that Slack Investor has added to his portfolio. The first dot for each ETF is the BUY price and the second dot is either the SELL price, or the CURRENT price. If the lines keep going to the end of the chart (01/01/2023), then I am still holding the ETF.

When I plot out the price history of the themed ETF’s that I have bought over the past few years, the theme was not a dream. With the exception of the MOAT ETF, the flat or downward lines indicate a less than lustrous performance. Ideally, all my BUYS would slope upwards from left to right over time.

This chart is a good look in the “house of mirrors” for Slack Investor, I will continue to buy themed ETF’s in a small way to expose my investments to interesting sectors. However, I will modify my purchases of these themed ETF’s in the future – Or at least, wait a few years after launch for the excitement to settle down … and then invest.

Not all is lost, there are some bright lights amongst the themed ETF’s. The Morningstar Australian ETF’s top ten performers over 5 years ar a mixture of both themed ETF’s, and broad-based ETF’s. Over a realistic 5-yr time frame, where there is enough time for “our flowers to grow”, the top 10 annualized average 5-yearly growth is shown in bold. Over 10% p.a. is impressive – but you have to be lucky – or a great ETF picker.

Name	Yield %	Fees (MER%)	1-yr p.a.	3 -yr p.a.	5-yr p.a.	10-yr p.a.
BetaShares Global Sstnbty Ldrs ETF (ETHI)	2.61	0.59%	-15.41%	11.35%	15.13%	—
BetaShares NASDAQ 100 ETF (NDQ)	3.37	0.48%	-28.41%	9.25%	14.71%	—
BetaShares Global Cybersecurity ETF (HACK)	8.72	0.67%	-22.06%	10.68%	14.32%	—
Global X Physical Palladium (ETPMPD)	—	0.49%	-2.05%	-1.16%	14.17%	14.43%
BetaShares Australian Res Sect ETF (QRE)	14.54	0.34%	22.98%	13.80%	13.72%	7.71%
VanEck Morningstar Wide Moat ETF (MOAT)	—	0.49%	-7.38%	8.17%	13.37%	—
SPDR® S&P/ASX 200 Resources ETF (OZR)	15.64	0.34%	22.90%	12.96%	13.23%	7.49%
iShares Global Healthcare ETF (AU) (IXJ)	1.1	0.40%	1.90%	9.79%	13.11%	16.93%
iShares S&P 500 ETF (IVV)	1.42	0.04%	-9.03%	10.09%	13.03%	17.94%
Global X Morningstar Global Tech ETF (TECH)	4.99	0.45%	-29.06%	5.29%	12.76%	—