May, 2017 | Slack Investor

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.