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.
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.
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.
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).
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.
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.)
While the market is doing what it does and there is the feeling of Armageddon in the price of stocks, Slack Investor knows that he has no control over market sentiments and, as a welcome distraction, he is having a look at some of the things he does have control over – the fees that he pays for financial services. Superannuation fees are still too high – some of the highest in the OECD. This is a recurring theme for Slack Investor.
I like to think that the Slack fund is a pretty trim ship – but, there is always room for improvement. Slack Investor runs his family super through a Self Managed Super Fund (SMSF) – but this is not the best option for those who are time poor or, don’t want the stress of the management of your own retirement. On the plus side, for larger balances, if you use a low cost provider, it is relatively easy for a SMSF to restrict fees to less than 0.5% of funds under management.
High super fees linked with underperformance
Fees are the other most important factor when choosing a superannuation fund. You can’t control how markets perform, but you can control how much you pay for the management of your hard-earned money.
Stockspot Fat Cat Report 2021 – Annual Report on Superannuation funds by Stockspot that sorts each fund into “Fit Cats” (Good) and “Fat Cats” (Bad).
As a general rule, for profit (Retail) super providers charge fees in the 1.4-1.8 % and the not-for profit funds charge 0.8-1.0 %. For larger balances (>50K), if your annual fees are more than 1.0% of your total super balance then it is time to look elsewhere – try to get your super fees below 1.0%.
I recommend all Australian readers to drag out their latest annual super statement and find the total amount of fees and charges. Divide the total fees by your total super amount (x 100) and you will have the percentage of your super that you are paying in fees.
Canstar have compiled a 2022 Outstanding Value Superannuation Award winners report that allocates a star rating for superannuation funds. based upon 5-year performance (after all fees) and features of each account. A four or five star rating is good. Their top rated funds for value in 2022 are all Industry funds and are listed below – these would be on the shopping list if I wanted to change my super fund.
Super Fund
Type
Australian Retirement Trust
Super Savings
Australian Super
Australian Super
Aware Super
Personal
Cbus Super
Cbus Industry Super
Hostplus
Personal Super
UniSuper
Personal Account
VicSuper
Future Saver / Personal Saver
For more detail on how your super compares with others, there is a fantastic bit of superannuation comparison software, designed by Chantwest, called Apple Check. You have to give up some contact details for the form and access it through individual super fund sites … but they have provided great comparison info on super products to Slack Investor with no spamming. Worth doing if you are considering a switch and want to be fully informed of a fee comparison that applies directly to your situation.
I have compared two non-profit Industry funds (UniSuper and AustralianSuper) with a for-profit Retail fund (AMP Summit) for a nominal $300K account – in both Accumulation and Pension mode. Clearly AMP Summit has higher fees for both an Accumulation a/c and a Pension a/c. I would be happy to pay higher fees of a retail fund (AMP Summit) if there was an established increase in performance. However, the Apple Check report shows a 10-year net return (investment returns after all fees) of the retail fund is at least 10% worse than either industry fund.
Apple Check comparison of fees for ACCUMULATION accounts of $300K. Unisuper (0.48%), AMP Summit (1.22%) and AustralianSuper (0.72%).
Apple Check comparison of fees for PENSION accounts of $300K. Unisuper (0.57%) , AMP Summit (1.22%) and AustralianSuper (0.77%).
Market downturns are never easy, but Slack Investor knows that this time will pass – and in the meantime, I will pursue the distraction of fine-tuning the financial fees that I do have control over.
Paul Keating, at the National Press Club in November 2021, likening Australia’s recent announcement of buying 8 submarines as part of our defence strategy against Chinese expansion as “… like throwing a handful of toothpicks at the mountain.” – The Guardian
Paul Keating is an established Slack Investor hero for helping to modernise Australia’s economy and also introduce compulsory superannuation back in the early 1990’s. He has certainly not lost his ability to cut through with memorable quotes. In amongst the barbs at his latest Press Club interview was a compelling message for the need to feel comfortable with Australia’s place bordering Asia. Keating stressed the positive aspects of Australia’s potential for engagement with the region, particularly with Indonesia and China.
Now, back to finance … and the need to engage with our own mountain. At the end June 2021, Australia’s total superannuation assets were $AUD 3300 billion ($USD 2360). This staggering sum is almost 150% of the whole of Australia’s annual Gross domestic product(GDP) for 2021 of $USD 1610.
Australian superannuation fees are still too high
Although it is far from perfect, we should be proud of our superannuation system – it is the fourth largest pension pool in the world – not bad for a small country. But we can do better.
Data collected by the Productivity Commission showed that superannuation fees and costs were at the upper end of global comparators, and significantly higher than pension top dogs, Denmark and the Netherlands
It is difficult to make direct comparisons to other countries as each country has its own quirks. For instance, the average Netherlands worker contributes 22.5% of salary to their defined benefits super scheme – compared to the current rate in Australia of 10% and (hopefully) moving towards 12% in 2025.
There are some structural changes that must happen to make our superannuation system more efficient. A good start is the Australian Prudential Regulation Authority (APRA) introduction of a performance test to identify poor performing super funds. But readers of Slack Investor do not need prompting from APRA – they have already engaged with their super and switched to be in one of the top performing funds.
In a recent speech, Margaret Cole, a board member for APRA, pointed out that Australia has too many small super funds – Of the 156 APRA-regulated superannuation funds, there are 116 funds that each have less than $10 billion under management.
To get costs down there must be much greater consolidation of these toothpicks to achieve economies of scale so that they can be at least a “tree on the mountain”. Unfortunately, each of these funds have their own board, investment officers, and other “hangers on”. Self interest keep them going … not the needs of their clients. Their members must overcome their super inertia and change funds if they are performing badly. Or, the funds need to be told … and regulated out of the picture.
November 2021 – End of Month Update
Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
Most markets drifted down this month. The Australian market down -0.9%. The FTSE 100 down -2.5% and the S&P 500 down -0.8%. Slack Investor remains watchful with stop losses in place.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
“Sick young Bacchus” a self portrait by Caravaggio (circa 1593) showing himself as the Greek God Bacchus, the god of wine. It is thought that Caravaggio painted this portrait when he was not well – probably suffering from malaria. From the Borghese Gallery, Rome.
Fear and greed are part of the human condition, these traits have evolved over time.
Without the right dose of fear, we would expose ourselves to unreasonable threats and, without the right dose of greed, we would forego opportunities to secure the resources that we need to live.
The fluctuations of the stock markets are just a symptom of these traits. There is a lot of general panic and selling when the stock market starts consistently falling. Stock owners become fearful of further losses and press the sell button. This sets up a chain reaction and the markets fall even further.
A “Herd Effect” exists in the financial markets when a group of investors ignore their own information and, instead, only follow the decisions of other investors.
It is easy to see how herd behaviour evolved as copying what other individuals are doing can be useful in many situations. For example, if there is an immediate threat, that you haven’t noticed and the herd has – it might save your skin to follow the herd.
Then, of course, there are the good times when the stock market is pumping – the buyers start piling in regardless of the fundamental foundations of the stocks. Asset bubbles often result and a good example of this greed was the “dotcom” bubble in the late 1990’s when big prices were paid for any company that mentioned the internet in its prospectus. Nobody wanted to miss out on, what looked like, easy money.
But these herd behaviours are the opposite of what the astute investor should be doing. We must fight these evolved traits and develop our own behaviours that keep us on the right path.
Savings Automation and Dollar Cost Averaging
Slack Investor has written before about automating your savings. There are also huge advantages to automating your investing – particularly when you are just starting out in the investing world. The first stumbling block that new investors face is to start investing. Then they must develop the habit to keep on investing. There is always a reason to use the money somewhere else or, you might think that right now is not a good time to invest. This “paralysis” must be over come and the best way to do it is through automation.
With auto investing, you don’t have to make the decision when to invest, it just happens automatically when your savings reach a pre-determined point. This opens up the delights of “Dollar Cost Averaging” where, if the market is relatively expensive, you will buy few shares – and if the market is undervalued at the time, your set amount of dollars will buy more shares.
You are buying in the good times and bad . This doesn’t matter – the important thing is that you are buying into companies and accumulating your wealth. Your purchasing is relentless, no decisions, no procrastination – Warren Buffet would be proud!
By investing regularly, in this case, $417 per month, you accumulate shares regardless of the share price. Dollar Cost Averaging buys you more shares when the share price is cheap and less when they are more expensive. – From SeekingAlpha.com
Pearler and Auto Investing
A new kid on the block in the broking business for Australian and US shares is Pearler with distinguishing points of a flat $9.50 brokerage charge and the use of the Chess system for attributing shares to individuals. This means that you are issued with a Holder Identification Number (HIN) and you have direct ownership of your shares. Slack Investor likes this model rather than the custodial model of many other new broking players. Pearler also offers free brokerage on the purchase of selected ETF’s (provided that you hold them for a year).
However, Slack Investor thinks the absolute best feature of the Pearler platform is that it encourages Auto Investing and makes the process simple. If you are serious about your investing journey, you need a broker and why not make it Pearler.
There are some well researched and comprehensive reviews of Pearler and its many features by Captain FI and AussieDocFreedom.
Auto Invest through Pearler is an excellent way to combat the cycles of fear and greed and take the emotion out of your investing decisions.
Other than just opening an account with them, Slack Investor has no affiliation with Pearler.
This is a beautiful detail from an impressive sculpture sitting under a fully-robed Athena (Goddess of War and Wisdom) from thePallas Athena Fountain in the front of the Austrian Parliament in Vienna. In Slack Investor’s favourite story of the month – which brought great delight for it’s ludicrous starting point, this wonderful sculpture is in the news as it is part of a new “genius” Vienna Board of tourism promotion to supposedly defeat censorship by social media providers.
Vienna and its art institutions are among the casualties of this new wave of prudishness – with nude statues and famous artworks blacklisted under social media guidelines, and repeat offenders even finding their accounts temporarily suspended. That’s why we decided to put the capital’s world-famous “explicit” artworks on OnlyFans
But I digress, the figure (above) representing the Inn River is depicted asking the Danube River for some leniency on her home loan rate – This conversation is something I highly recommend to all with a mortgage.
Not for the first time, I did a bit of a review of Slack outgoings this month. Starting with the large fruit first, loans and insurances. We have a small loan remaining on our house because I have used the home equity to buy some shares in the past. We could pay the loan off by selling the investments but, while home loan interest rates are low ( 2-3%), I am happy to keep this money in shares and hopefully gain a return more than my interest costs.
I noticed that the rate my bank charges me on my loan (2.7%) is higher than that offered to new customers (2.35%). A quick internet search revealed a few loan operators offering loans close to the 2% mark. An informed phone call to Bank Australia provided a quick revision of my rates downwards. Confirming that loyalty is only rewarded – when you nag the institution.
Regardless, I am happy with the saving of $8000 for the life of the loan that this phone call achieved. Those with higher loan balances should be rewarded more significantly for a painless phone call to your lender.
New Fintech loans
Beyond the traditional banks there is an emerging FinTech solution to loans. There are too many to mention but they all seem to be willing to lend you money for all sorts of reasons. In a further erosion of “old banks” business, Slack Investor was shocked to count over a hundred of these new enterprises. Each with their own “catchy – but cool” names. I would be very wary about investing any Slack funds in these new businesses as there seems to be a lot of competition in this space.
However, taking money from them … where they are assuming all the risk – and offering very competitive rates – sign me up! Providing, of course, that I know all of the conditions of the loan contract up front.
There are a number of new home loan providers Yard, Athena, Nano , Bluestone, Well, etc. Each are offering products at about the 1.99% rate for home loans with a high amount of equity. In the event of of a loan provider collapse, they offer the assurance that another loan provider will takeover the loan under the same conditions that you originally signed.
Athena Home Loans
There a range of home loan providers that are offering no-fee loans at around the 1.99% comparison rate. I have no affiliation with Athena. The only reason that I am focusing on Athena rather than the other excellent home loan providers is that I like their sustainable philosophy of trying to obtain their funds from super funds who need the stability of a fixed income for a portion of their portfolios. It is also a good marketing link to a lot of people. They also have a reputation of quickly passing on any reserve bank interest rate cuts.
We’re working on providing industry super funds a way to access the Australian mortgage market directly and aim to be the first in Australia to do it!
I am happy to go through the loan application process with Athena. They have streamlined applications so that it is mostly online. Their 1.99% rate will give me a further saving of around $8000 in total interest payments on my current loan. However, I note that I will incur discharge fees on my current loan of about $370. This does not trouble me as I would have eventually incurred these discharge fees when I fully pay off my home loan – and the further joy of the Athena loan is – No application fees. No ongoing fees. No discharge fees.
October 2021 – End of Month Update
Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
The Australian market remained flat -0.1%. Overseas markets seem on the move with the FTSE 100 up 2.1% and the S&P 500 rising an incredible 6.9%. The optimistic Americans seem impressed with a swathe of good earnings reports and have had the best monthly return this year. Slack Investor remains watchful with stop losses in place.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Slack Investor is drowning in paper. Owning shares is a lot of fun but the unnecessary postage and paper is a waste and a frustration. In particular, the posted CHESS Holding Statements from the Australian Securities Exchange (ASX) and useless bits of paper from the share registries are annoying.
(The) ASX sent out 19.2 million paper statements over the year to June (2020), a rise of 34 per cent, as trading surged during COVID-19. The statements used 103 tonnes of paper in the past year.
Australian Investors will be familiar with CHESS, the computerised Clearing House Electronic Sub-register System of the ASX. It was introduced in 1994 and has been around for most of my investing life. All my share holdings are settled through CHESS, through a Holders Identification Number (HIN) and managed by a broker.
There is no doubt that the introduction of this system 27 years ago was a bit of a revolution as it simplified share trading from the cumbersome system of share ownership certificates. It was a world leading technology at the time. However, things have moved on and Slack Investor issues a plea to the ASX, enough is enoughwith the useless paperwork.
ASX charges companies $1.25 for every “CHESS holding statement” sent out to investors, who receive them even if they quickly sell shares bought. Many investors put them straight in the bin.
I am by no means a frequent trader … but the constant statements that I get mailed to me for every small change in my share balances are a continuing source of frustration.
A Sample of the 10 Chess Holding Statements that washed up into my post box last week. These statements are issued by the ASX and are currently unavailable online – they are only issued in hardcopy via post
Although these are mailed out to me at the end of every month – I have never used these statements. The definitive holding record of what shares I own at any given time is held by my CHESS sponsor, my broker (Commsec or SelfWealth).
In the same way I trust my superannuation fund or Bank (i.e not much!), I trust my broker with the record of share ownership – and, I also trust them to work out any dispute if I disagree with their tally. If there ever was a dispute … I would go back to the PDF contract notes and certainly not the paper CHESS Holding Statements to try to resolve it.
How to cope with share record keeping now
At the moment the only way that you can get your Chess Holding Statement is through the post. For 27 years, I have dutifully filed these statements but now, like many of my fellow traders, I have decided to shred them and put them straight in the recycling bin. Shredding is important as these notices contain your name, address and personal HIN.
However, there ARE other very important bits of record keeping that you should try to handle in digital form.
Share Registry Stuff
Share Registries are another intriguing layer in the ownership of shares – and another source of paper and postage. When a company lists on ASX, most companies appoint a share registry to manage the book of shareholders. For we share buyers, the registries manage our share holdings, dividend payments, and the voting at the annual general meeting.
Confusingly, there are three main share registry companies in Australia, Computershare, BoardRoom and Link Market Services and, it is a bit of a raffle which registry manages each company. On purchase, I always label each share with its associated registry. You can look them up at ASX Share Info. For instance CSL is always CSL (C) in my records (Computershare) and Macquarie Group is signified as MQG (L) as it uses the Link registry. I find this cross-linking very handy when chasing down any company payments (dividends) or tax statements and I can’t remember which registry manages the company shareholders.
Whenever you make a share purchase in a new company, through your broker, even though it is using your personal identifier (HIN), at the moment it is necessary to contact the registry and do three things. You will probably be prompted by a paper mail delivery asking you to contact the registry.
Register your bank account details for dividend payments with each company (even though they may already have them)
Register your Tax File or ABN number (even though they may already have them).
Tell the registry how you want to handle all communications – (electronically/email) suits Slack Investor
Every registry change that you make usually generates a letter in the post. They charge the company (we shareholders) for this, though some registries seem to be letting me know by email if they already have my communication preferences.
Keeping track of your finances
These days most share transaction and income finance details are now pre-filled on your tax return. However, it is your responsibility to check on these things and, at a bare minimum, you should download a summary report from your share broker at the end of the tax year. This report contains your buys, sells and income and is usually sufficient evidence for your annual tax return.
A more complete share portfolio solution is using third party financial software such as Sharesight. This is amazing software and is free to use if you have 10 holdings or less. They supply end of tax year reports that even include a capital gains analysis.
Slack Investor is a bit “old school” here and uses the free Microsoft Money Sunset International Edition for portfolio management- But this is dated software now and not recommended for new users.
Because I like to keep track of everything without paper – Slack Investor also sets up folders on his computer for each tax year. There are subfolders for 1. Dividends and Distributions and Tax Statements (From the registries) 2. Broker Transactions.
Dividends and Distributions and Tax Statements: There is no excitement like dividend season as the dividends and distributions roll in via each company registry. I download PDF copies of all payments. I file them on my computer in the format: Tax Year_Investor_Company_Type_Date e.g., 2021_SMSF_CSL_DIV_2021-04-01. Or 2021_SMSF_RBTZ_TaxStatement_20210630.
Broker Transactions/Contract notes: When you buy or sell a share through a broker, a contract note is issued. These should be emailed to you and your broker will keep a copy of them. I also download each contract note for a buy or sell from my broker in the format: Tax Year_Investor_Company_Type_Date e.g., 2022_SMSF_COL_BUY_20210809
Capital Gains: When you sell shares for a profit or loss , you need to declare it on your tax return. Capital gains calculations can sometimes be tricky. A simple example is described in this ABC Overview here and Slack Investor will plan a later article on how to handle more complex cases.
Of course some paper documents still sneak through the Slack Investor fortress and I keep them in a tray in my office and bag them in envelopes labelled with the tax year and keep them for five years, as required by the ATO.
The Future
I am hoping that the share registries can ask the ASX for an email only option for share owners. All registries should have an automatic default instruction to use the same Bank account, tax file # and communication preference – whenever a share purchase is made with your Holder Identification Number (HIN). No announcements from the registries yet – I lie on the couch and dream.
In late 2017, the ASX sent a ripple of excitement through the market, announcing that CHESS would be replaced with distributed ledger technology
… but not until 2023. In the meantime, if these holding statements are necessary – can we at least have an e-statement option.
The ASX has had many delays to the starting date of this new technology. Distributed Ledger Technology (DLT) is similar to Blockchain. The full difference between Blockchain and DLT made my head hurt … so I hope they know what they are doing.
Unlike the CHESS system, Mr Squiggle never gets old – even after a 40-yr career starting in 1959 – With thanks to Norman Hetherington, Mr Squiggle, and ABC TV
But, please hurry up with these reforms ASX … after decades of complaints. Streamline the share registry process, ask us for our email details and give us the option for email delivery of statements. In its current form, the CHESS clearing system and paper mail trails just seems a little bit … of another time.
Like Sally, one day the realization will come that your best interests rely on you steering your own bike – in the direction that you want to go!
The ultimate goal is to get your three substantial piles going – house, income and investments. But before any of this happens you have to develop a mindset … I want to be in control of my financial life.
You must gain control over your money or the lack of it will forever control you. —
If you don’t take control, perhaps you’re plan is to take all your affairs to a financial adviser one day. Most people will feel the need for financial advice at some stage but only 20% of Australians have a financial advisor. The current structure makes getting advice a difficult step – and it’s not the financial advisors fault.
The pricing problem of Financial Advice in Australia
64% of survey participants agreed that financial advisers were too expensive.
The Australian Government passed a piece of legislation known as the Future of Financial Advice (FoFA) in 2012. FoFA was a series of laws that were supposed to improve the quality and transparency of financial advice. One of the main purposes was banning conflicted remuneration – where advisers were recommending products that gave them good commissions. While FoFA and the Hayne Royal Commission were well intended and vital in restoring some trust in the sector – there have been some unintended consequences.
(The Financial Services Royal Commission) identified the problem of conflicted remuneration without providing a mass market solution.
There has been a huge rise in regulatory red tape and the associated compliance costs for financial planners. A combination of these costs, the big banks dumping their financial advice arms, and the need for upgraded qualifications has put this sector in crisis. The total number of licenced advisers is set to drop by a third in the next few years.
There is broad recognition that financial advisors have expertise that the normal punter does not have. However, the biggest barrier to getting financial advice is the expense. One of the big problems is that when you engage a financial advisor, they are obligated to present you with a full Statement of Advice (SOA). On the surface this makes sense, the client would want a document that takes into account your own circumstances and outlines the fees and risks of each strategy. However, according to one planner, the SOA has turned into pages of jargon, repeated disclosure and boring generic graphs. These statements are weighty tomes that take many hours to prepare. Sadly, they seem to confuse the actual adviceand provide no real value to the client.
A full Statement of Advice (SOA) runs over 100 pages and the need to review all circumstances and develop a plan takes 10 to 15 hours and costs between $3,000 and $5,000 depending on complexity.
James Kirby from The Australian uses the example of paying annual adviser fees fees of $3000 and he supposes that the structured advice that you receive will match the 4.3% pa return of the new Magellan retirement income product Magellan FuturePay (FPAY). He points out that for an investment of $500 000 and an expected FPAY return of $21 500, your advice fees would be 14% of your earnings. This does not make sense to him … or Slack Investor.
James Kirby suggests that a better model for the regulators to adopt would be that you could approach a financial adviser for advice that you need at the time … and pay the financial adviser for this “niche” advice. This is not possible under current legislation.
Take charge
So, with full service financial advice gravitating towards high net wealth clients, what is the average punter supposed to do? Robo-advisors such as Stockspot could be part of the solution. This automated service can provide help with allocation of assets other services that will suit your age and risk profile. But there are so many more financial questions you might want to handball to your financial adviser if you could afford one. Well, if you can’t … it’s up to you.
Decide what you want to achieve in the finance sense. Go through the savings basics and get your savings rate up. Take charge on where your money goes, get your superannuation set, reduce any unnecessary fees that you are paying, set a target on your financial piles.
Educate yourself on things financial. There are some great books. The Barefoot Investor is an excellent start. Some fabulous podcasts The Australian Finance Podcast will get you going and there are heaps of other Slack Investor favourites. Get involved and start to enjoy the immense freedom and satisfaction of riding your own bike.
Happiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.
Slack Investor is not known for his fast work … and have often taken the couch when action was probably needed. There are some stocks that I will hold for the long run, and their weekly charts are not of big concern to me. However, about half of my portfolio is on a weekly watch – I review the charts on a weekend and cast the Slack Investor jaundiced gaze over each stock that I own (Thanks Incredible Charts!)
This is the least satisfying timescale and, if I could successfully train myself to ignore this daily oscillation of my investments – I would. The reason to avoid daily swings of the share price is that I have absolutely no idea about whether the price of a stock or index will go up or down on the next day – the share price is determined by others! In the chart below, in the first 7 days shown, the daily index went down, down, up, down, down, up, up, etc – monitoring daily prices can be frustrating!
ASX 200 Daily “Candlestick Chart” showing 6 months of index values since January 1 ,2021. The Red candles show a day when the value went down, and the Blue candles indicate a day when the index price went up.
I am happy to say that, when on holiday, or busy, I have no need to monitor on the daily timescale. Regardless, no decisions are made on this daily basis.
Weekly
Weekly is where the “rubber hits the road” for Slack Investor – and I look forward to my weekly sessions with my portfolio. I set aside an hour on the weekend to make sure my portfolio prices are updated and the charts are reviewed. The weekly time scale smooths out a bit of the volatility and I then open up Incredible Charts to scroll through my portfolio.
Incredible charts offer a free month sign up and then $9.95 per month for access to worldwide updated delayed charts daily from 6pm Australian time. This package is not in “real time” and does not suit a day trader. But for an investor on my slower time scale, it is very good value. These charts open up the whole world of technical analysis as it allows you to monitor trends in your stocks and mark in trend lines and stop losses.
I have always used the weekly charts to make decisions on buying a company – looking for a momentum shift in the trading using the Directional Movement System. I also like to trade a “breakout”, or a “wedgie”
Monthly
This is the timescale when I am most happiest and would like to make decisions just every month. After a life of work where decisions were a constant grind – It is a gift not to make decisions!
It is still my aim to make selling decisions monthly – but things seem a little precarious lately and, for now, I am on a weekly decisions cycle for selling. The sell happens when a stock price finishes below my stop loss at the end of the week/month (see Technical Sell below).
Yearly
This is the “Look at yourself in the mirror” period where Slack Investor does the evaluation of his portfolio performance against benchmarks at the end of each financial year. Although the financial year ends at June 30, it usually takes until the middle of August for me to get my final results and benchmarks together. I present my results at the annual Financial Year Results post.
Special Occasions Selling
Slack Investor is in one of those right now and he has to free up some cash to by selling some shares. I like to do things a bit methodically and here is my process for a sell.
Technical Sell
This is my first port of call. Technical Analysis uses charts and trends and I have been watching the charts for the past 4 weeks for a technical sell signal in my portfolio. For me, this happens when the stock price falls below the pre-determined stop loss that I have set. I will then try to sell at the start of the next week/month. My rules are not rigid here, if the stock starts to rebound after I have made my sell decision, I might stick with it for a little while longer.
Another technical signal is when a stock loses its momentum – but this is a more subjective signal than when a stock simply moves below a line.
Slack Investor bought into ESPO in October 2020 at $10.39 and sold this week at a small loss $10.19. The stock didn’t grow like I thought it would – but that’s fine. I like the concept of this ETF but I am happy to be out for now and look forward to be getting back in when a strong upward trend establishes itself.
I was also able to exit on a technical sell for the Betashares ASIA ETF and I am not sure what is going on here as I thought the tailwinds for this sector were good. Small profit this time and will get back in if the trend changes.
Weekly chart for the VanEck ESPO ETF showing a breach of the stop loss – Incredible Charts.
Fundamental Sell
Fundamental Analysis revolves around trying to determine the real value of a stock by looking at its financial data (e.g, Price/Earnings ratio, Return on Equity, Debt, etc) over time and, in reference to its competitors. This is a much more complicated process.
If Slack Investor can’t find a technical sell, I look for a fundamental sign. I will list all of my sellable stocks (Shares that I don’t hold for “the long run“). The first step is to get some financial data on each company from the very good Market Screener then put them in a table and hope that something stands out as a sell. A sell signal might be a trend of falling earnings, increasing debt, or decreasing Return on Equity (ROE). I also get nervous about a stock if its predicted (+ 2 years) Price Earnings (PE) ratio goes over 50. Fortunately, I didn’t have to resort to any fundamental analysis this this time … and this approach probably needs a post in itself.
In the meantime, like my pumpkin friend … always watching …
There are many numbers to note in finance world – Fees, Investment returns, etc. However, there are two extremely important numbers when it comes to financial independence. Both are percentages and the first one is the 4% “rule of thumb” and the second is your savings rate.
The 4% Rule
All followers of finance blogs would have heard of this often quoted “rule” Slack Investor acknowledges that this magic number is arguable and depends on individual circumstances but, it is an excellent way to estimate how much you will need to retire. The 4% rule is a way to “roughly” link assets with income. For example, as an estimate, if you would like to generate a $40 000 yearly income, you would need to have investments assets of $1 000 000 to earn this income using the 4% rule (4% of $1 000 000 = $40 000).
Another way of looking at this 4% rule is that you need to save 25 x your annual spending for your retirement fund so it can generate an income to cover your spending. So, if you spend $30 000 a year, you need a portfolio of $750 000 (25 x $30 000). To get an idea about what your expenses are it is important that you track them over a year using a spreadsheet or finance software. If necessary, this investment income can always be supplemented by a government pension or a part-time job.
Bill Bengen originally came up with this “4% safe withdrawal rate” in 1994. He developed it by backtesting a conservative US portfolio with data dating back to 1920 and tried to get a safe withdrawal rate that would generate an income for at least 30 years. He is the first to admit that the 4% number was always treated too simplistically and has since updated the rate to be closer to 4.5%.
Slack Investor is a bit old fashioned in liking to hold on to most of the capital that is earning the money and has a flexible approach to how much to extract from investments each year. In a good year for the stock markets, I am happy to dig deep into the investments pile – using dividends, distributions and even some capital gains as income. When the market performs poorly, it is more complicated and I have to dip into my stable income pile. Most of the Slack fund is in Australian Investments and in 2021, the Australian Index has a 12-month forward dividend yield of 3.5% . Hopefully, the shares will also increase in value over time. Over the past 10 years, Australian shares had a total return of almost 7% – with growth shares you can aim higher, but prepare for volatility. In the good years, I will also take out a bit of capital gain for extra spending. All of this is in addition to the stable income component of my investments.
Using the 4% rule we estimate how much will give us a sustainable retirement. But there is another number to add to our arsenal.
Just as in Lord of the Rings there is ” one ring to rule them all…”, there is also one “percentage” to rule them all in the Financial Independence world – and that is the Savings Rate percentage.
The annual expenses is critical here as this is the figure you are trying to generate out of investment income. Lets have a look at the effect that savings rate has on the number of years that you have to work until you can sustainably generate your expenses from your investments. The table below is from the great financial blogger Mr Money Mustache. There are a few assumptions used to generate this table
At a saving rate of 10% you will have to work for over 50 years – we have to do better than that! There are some pretty heroic savings rates amongst financial bloggers e.g Aussie Firebug 61%; Dividends Down Under 61%; I have admiration for these savings rates and note that these bloggers are in a hurry to get to financial independence – and retire early. At 60% savings you can retire after 12.5 years of working and saving – but that sounds pretty hard.
Slack Investor was on a much slower train and lucky that he quite enjoyed his job – and didn’t mind spending 30 years saving for his retirement. I have always been a good saver but, when looking at my past savings rates, it was usually around the 30-40% level and, some years had dropped down to 20%. Raising a family and holidays are a delightful interference with savings and you just have to find a balance. In Australia, we have compulsory superannuation which currently adds a welcome 9.5 % to your savings rate.
A beautifully presented calculator at Networthify shows how the savings rate works and gives a yearly breakdown. It also shows some interesting OECD statistics for average National savings rates (e.g. The US 6%, and India 32%). The aim is to eventually save enough money to invest in a way that you average (at least) 5% return on your investments after infation. If you withdraw from this retirement pool at the rate of 4% and have enough to cover 100% of your expenses – you become financially independent – the retirement pool keeps on giving!
Automate your savings
One of the best financial habits that I formed was to take the thinking out of saving and set up automatic recurring transfers from my work money to my savings or investment accounts – Pay Yourself First. I also took full advantage of “concessional contributions” to my super account which were taxed at 15% rather than my then marginal rate of 37%.
So, automate your savings. Investment returns are important and we hope that we can exceed the 5% after inflation returns that the above table and 4% rule are based on. However, the number you have most control over is your savings rate – and that is most important.
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