Category: Financial Service fees

Auto-Diversification … and September 2024 – End of Month Update

Slack Investor tries to be a little diversified in his investing with his Three Pile Theory. Although my Investment Pile (The Slack Fund) consists mostly of Australian and International Shares, my Stable Pile (about 30% of retirement funds) consists of annuities, Real Estate ETFs, Fixed Interest products, some high dividend paying shares and some Cash. I own no bonds, Gold or Cryptocurrency. I am not very strict about rebalancing … but, that’s because I am slack! Deep down however, I’m convinced that diversification makes good financial sense.

A quick look at the yearly Vanguard diversification table below shows the percentage annual total returns for 9 different asset classes. I have only shown the last 17 years, but the 30-yr table can be found here in .pdf form.

Total returns for each asset class for the 30 years since 1992 – Check out the full 30-yr glory of the Vanguard 2024 – Importance of Diversification.pdf – Click this chart for better resolution.

For financial year 2024, the best performers were: Australian listed property returned 24.6%, US shares 24.1% and hedged ($AU) International shares 21.5%. The point of the Vanguard table is to highlight that it is very hard to try and predict the yearly winner. Slack Investor notes that International shares (particularly the US) have featured in the top 3 for a lot of these last 17 years. He also notes that Cash is a rare top performer – but, well done for 2022! It is always useful to have a look at the Vanguard Long Term Investing chart for a reminder of the compounding power of share investing.

Auto-Diversification

Superannuation

All of your Super contributions end up in a fund that is diversified to some extent. You usually can decide on how diversified you want it to be. For example, Australian Super offers, in their pre-mixed options: High Growth, Balanced, Socially Aware, Indexed Diversified, Conservative Balanced and Stable offerings. Even their High Growth option is split into a number of different asset classes – though their ranges seem a little ‘loose’ for full disclosure to their clients.

Australian Super ‘High Growth’ Pre-Mixed asset allocation by weight – June 2024

Slack Investor’s instincts has always been to be invested with the highest growth option … though I did reassess this a few years before retirement!

Other Investments

OK then, super is taken care of … but what if you want a diversified option for other investments that could be assured long-term growth without constant input. This is where robo advice might shine. Robo advisors usually package a mixture of low cost ETF’s into a diversified portfolio with automatic re-balancing.

Slack Investor is aware of many robo advisers that operate in Australia. ValueWalk has prepared an excellent summary article. Valuewalk compares and reviews: CommSec Pocket, Spaceship Voyager, Betashares Direct, Raiz, Sharesies, Pearler, Stockspot and InvestSMART.

Just for example, I will expand on the offerings of Stockspot as they have been going the longest and have the most assets under management ($800m). I have no financial interest in the company – though I am impressed with their results – outperforming 98% of similar funds over a 5-yr period. Depending on the risk profile that you want, Stockspot uses various combinations of just 5 low-cost ETF’s – one of which is gold.

There is a sliding scale management fee for which all admin and rebalancing is taken care of. For example, for account balances of $200,000+, there is an annual fee of 0.528% per year.

When Slack Investor loses the ability to stock pick growth stocks effectively (or, perish the thought … shuffles off this mortal coil!), I will set up some succession plans that will move our investments onto a secure ‘minimal involvement’ platform such as robo advice.

Slack Investor is old fashioned when it comes to ETF ownership. I much prefer the robo advisers that run under the HIN system (Holder Identification Number) – where the ETF’s are registered in your own name. This makes things simple if the robo adviser should cease operations e.g. Six Park (Aust).

The alternative is the ‘custodial’ system – where the investments are held on your behalf. Although custodial models can have lower costs – I like to see my name on the ownership documents. Stockspot is one of the advisers that run under the HIN system.

Although Slack Investor is a great believer in finding out about financial things for yourself with the magic of the internet. This way is not for everyone. Let’s just be clear, for most people, if you want specific advice on wealth management, tax advice, estate planning or a multitude of other finance problems, you are best counselled to seek a qualified financial adviser.

However, if you have a lump of money that you want invested in a diversified way that suits your risk profile, then robo advice seem a relatively cost-efficient way to ensure your investments are spread across asset classes. Naturally, Slack Investor would like the fees charged by robo advisors to come down a little before he parts with his Slack funds.

September 2024 – End of Month Update

Another month with a big range of daily closing values. The ASX 200 (+2.2%) and the S&P 500 (+2.0%) are in all time high territory. The FTSE 100 languishing and down 1.7% for the month.

Slack Investor remains IN for all markets.

The recent strength of the US market has pushed the closing monthly value to more than 15% above my old stop loss. I adjusted the stop loss upwards to a new ‘higher low’ of 5119.

Weekly chart for the S&P 500 Index showing the stop loss revised upwards to the new “higher low” of 5119.

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

The quarterly updates showing the shares in the Slack Portfolio have also been completed.

Retirement Fees … and September 2023 – End of Month Update

Tax collectors – Marinus Van Reymerswale  (c. 1490 – c. 1546)

The ruthless faces of the tax collectors depicted by Marinus Van Reymerswale do not ring true to Slack investor. These days, tax and fee collectors sit smugly behind desks as the fees and taxes roll in. Don’t get me wrong, Slack Investor is pleased to pay his fair share of tax … but excess fees for investing, that’s another story.

Most people have money in a super fund during their working life – this is normally known as an Accumulation Fund. When they retire, and the money can be released, they rely on this saved money to pay of debt – or fund their retirement. It is usual practice that you ask whoever runs your super fund when it is accumulating to also run your retirement fund – that pays you a pension at regular intervals.

For a fee, the super funds take care of the “back end” of this retirement fund – where your money is invested and all the administration for the fund. The Super provider sets up a new account within your super called an Account Based Pension (ABP). There is a great advantage in doing this as all earnings from from money transferred to this pension part of the fund are tax free if you are over 60. At 60, Slack Investor converted all of his accumulation funds into an Account Based Pension.

Naturally, Slack Investor is all for minimising these fees. Lets have a look at some of my favourite industry funds (Low cost high/performance) – Australian Super, Hostplus, UniSuper, and HESTA. Using the Chant West AppleCheck online tool available through the Australian Super site we can compare what they charge for running an accounts based pension.

For comparison, I invested our hypothetical ABP in the “conservative growth” option (21-40% shares) on all funds. This is usually the least risky of pre-mixed types of investments – and might be favoured by retirees. There are more other pre-mixed options that have better long-term performance – but these other options have more volatility. I have shown below the fees on a $550K account comprising of a $500 000 Account Based Pension together with a smaller $50 000 Accumulation account that you might have still running for any extra contributions.

FUND10-yr Perf (%)5-yr Perf (%)Fees 500K PensionFees 50K Accum.TOT Fees 550K
Australian Super5.13.52602322$2924
HostPlus4.72.93043404$3447
UniSuper4.83.52696356$3052
HESTA5.44.33152362$3514

The more you have … the more they charge.

Looking at just the cheapest of the above Industry Super providers, Australian Super with a pension account of $500K, $1m, and the current maximum amount for an accounts based pension $1.9m – again using the Chant West AppleCheck online tool.

Australian SuperFees – PensionFees 50K Accum.TOT Fees
$500K Pension Fund2602322$2924
$1m Pension Fund4802322$5124
$1.9m Pension Fund8762322$9084

You could argue that these fees are reasonable, at around 0.5% of your invested funds, as there are inherent costs in investing and responsibly administrating these large amounts of money. Take the time to check what fees you are paying on your Super fund – and compare with a low cost/high performance fund using the AppleCheck tool – it might be time to switch funds!

Comparing Retirement fees with SMSF funds

Slack Investor is a great fan of the Self Managed Super Fund (SMSF) but recognizes that it is not for everyone – you must really be prepared to put a lot time and thought into the SMSF for it to be successful. To save on costs, rather than divesting responsibility to an accountant, Slack Investor uses a low-cost (no advice) provider and takes on a lot of the administration duties and investment responsibilities himself.

Unlike the Industry funds sliding scale for fees, a significant advantage in SMSF funds is that the costs are fixed – no matter what amount you have. For the 2023 financial year, Slack Investor’s costs through his provider eSuperfund were.

TaskAmount
Admin and Audit Costs (eSuperfund)$1,330
Brokerage (10 trades)$300
ETF Fees$2,300
Time (50h@$50)$2,500
TOTAL$3,930

In the above example of annual fees, I have tried to include a charge for my own time at a nominal 50 hours at $50 per hour. On average, a hour per week. Most weeks I wouldn’t spend any time on my SMSF but, around tax time, and when making decisions about buying or selling, pensions, or contributions, I would spend a few hours thinking or researching. Annually, 50 hours is a fair approximation. I would gladly perform these tasks for free as finance is an interest and a hobby, but I’ve included them above to make a proper comparison – as not everyone is a Slack Investor.

Running an SMSF, because of their fixed costs makes more sense with a large super fund (>$500K). However, at the core of any successful self-managed fund (SMSF) is the amount of time and effort that the trustees (you, and other members of the fund) are willing to put into it.

Given the all the above data, it could be better, but the amount of fees that a good industry fund charges to run your pension seem reasonable at around 0.5% of funds under management. Slack Investor hopes that competition and transparency should gradually lower these fees.

September 2023 – End of Month Update

Slack Investor remains IN far all followed markets. The ASX 200 (-3.5%) and the S&P 500 (-4.9%) have had a poor month. However, the FTSE 100 is emerging from the doldrums with a positive month (+2.3%).

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.

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

From the Sydney Morning Herald

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.

From Firstlinks

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).

Checkmate! ASX

From Chessbase

Slack Investor is all about “continuous improvement” Obviously not me … but everybody else! I normally have low expectations of “clip the ticket”, almost monopoly, systems such as the Australian Stock Exchange (ASX) as there is little incentive for improvement – they are going to get there cut anyway. Last year, I did get off the couch briefly to have a bit of a rant about ASX Paper …I’m Drowning!‘ But I did end the blog on a hopeful note, that system change was just around the corner with a new “blockchain” based system to replace the Clearing House Electronic Sub-register System of the ASX (CHESS).

After reporting five delays on the CHESS replacement project, the ASX has just announced a move to drop the whole project – that it has been thinking about since 2005. In a damning review of the ASX’s handling of the project by Accenture, that has been described by business leaders as “embarrassing”. There are now undermined expectations that the ASX can ever deliver on any new market infrastructure with its current board and management.

The project, which has dragged on for seven years, will now be “reassessed”, the ASX stated in a media release this morning, with the abandoned software being “derecognised” at a gross cost of $245 million to $255 million.

Tahn Sharpe – The Inside Adviser

Although the structure of the current CHESS system is not broken, there are a lot of things that should be fixed.

The underlying software that runs CHESS was a legacy gift from the NASDAQ exchange (i.e. Cost = $0). It is starting to creak a bit though, as it was written over 22 years ago in COBOL. Slack Investor was hoping that the new system would improve on the layers of fee-charging “ticket clippers” that are in the current system – but it seems that the vested interests still have the ear of the ASX.

… the reality is that the CHESS replacement looks more like a replication of all the old systems with its layers of fees being paid to half a dozen different players.

Chanticleer – afr.com

Instead of being the first National Stock Exchange to try use the blockchain technology, perhaps the ASX could wait and see whether other exchanges can bed down this new “distributed ledger “technology – then adapt their systems. After all, using market value, our exchange represents under 2% of the world’s companies.

Countries with largest stock markets worldwide (January 2022), by share of total world equity market value – Statistica

But what would Slack Investor know? – he is only a punter. In the meantime, streamline the current CHESS system – make it better. Whatever we do … it should cost less than $250 million!

Vanguard Super … and November 2022 – End of Month Update

Slack Investor Hero, Jack Bogle, reflecting in casual ware – on how to keep costs down – New York Times

Jack Bogle created Vanguard as a “penny-pinching” financial powerhouse that was owned by the shareholders of its funds. Vanguard pioneered the low-cost index funds revolution.

The Vanguard Effect

The cost of financial products is important, and Slack Investor does his best to minimise any fees that come with financial transactions. It is not often I get to talk about two of my favourite finance things in one blog. Vanguard, the low-cost fund trendsetter and superannuation.

Vanguard have long been a fund manager and ETF provider that have been at the forefront of lower fees in the finance sector. The term “Vanguard Effect” has been coined to explain the phenomena that when Vanguard competes in an area, the expense ratios from their competitors tend to decrease.

Tracking the average Management Expense Ratio (MER) for US Index funds – Vanguard

Vanguard Superannuation in Australia

This month, Vanguard launched into the Australian Superannuation space with a product that is transparent and amongst the lowest fees for an accumulation account. The beauty of their offering is the straight up bundling of all their fees into one simple number – 0.58% of your super balance. Of course, Slack Investor would like a lower management fee – but this is a good start.

0.35% (Administration) + 0.21% (Investment) + 0.02% (Transaction) = 0.58%

The Vanguard MySuper Lifecycle product fees depend on how much Super you have. For a $50,000 balance, the total annual fee would be $290, for a $500,000 balance, the total annual fee would be $2900. The transparency is good – Drag out your own Super annual statement and try to work out your own total fees.

Using the ATO’s comparison of MySuper products tool for a few of the popular industry funds for a $50K balance.

UniSuperAustralianSuperHostPlusHesta
5-yr Net Return6.44%7.07%7.58%6.53%
Annual Fee$316$452$619$510

Of course, fees are not the only consideration. Many of the Industry funds use some sort of stock picking, and may use private equity to enhance their performance. Vanguard Super is made up of a mixture of index funds. I do like the way that the Vanguard Lifecycle automatically adjusts your exposure to risk as you creep towards retirement. 90% growth assets till age 45, then tapering to below 50% when you reach 60. All this is done automatically by Vanguard.

The adjustment of exposure of the Vanguard Livecycle super between growth and defensive assets as you age – Vanguard

Despite this juicy offering, there is often a lack of engagement of Australian workers with their superannuation. Vanguard will probably have a bit of trouble gaining traction in Australia due to the size and popularity of their industry super competitors. This product is currently only for accumulation accounts at this stage. It is a decent starting point by Vanguard and l0ok forward to details of their pension option (coming soon!). I also am hopeful of a bit of the “Vanguard Effect” to put a bit of pressure on existing superannuation fees – which are still too high.

A note that Slack Investor is not sponsored by Vanguard (or anyone else!), but I own a few of their ETF’s and their original founder, Jack Bogle, is one of the Slack Heroes.

November 2022 – End of Month Update

Slack Investor is now back IN for Australian index shares, UK Index shares and UK Index shares.

Last month’s update describes why I feel glad that my 20-yr index timing experiment is coming to an end in 2024. The frustrating moving out … then quickly back in to my Index funds is getting tiresome. I am likely to become just a “buy and hold” investor for my small portfolio of Index funds.

This month, all markets found there were “Reasons to be Cheerful”. There were positive movements all round. The ASX 200 +6.1%, the FTSE 100 +3.3% and the S&P 500 +5.4%.

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

Control the things you can control … Super Fees

File:Tax payment to a lord - BNF Fr9608 f11v.jpg
Tax payment to a lord – Meister der Apokalypsenrose der Sainte Chapelle

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%.

Fees Charged by APRA regulated super funds as a percentage of assets. For profit funds (Retail) funds compared to Not-for Profit funds (Industry funds) – From Crikey: Why the hell are our superannuation fees so high?

There is a clear correlation between high fees and long-term underperformance in superannuation.

Stockspot Fat Cat Report 2021

What to do?

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 FundType
Australian Retirement TrustSuper 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.