Boring isn’t it. How Slack Investor goes on and on … and on and on … about long-term returns. But firstly, some short-term returns. All numbers are in for 2024 and the Slack followed markets all had an ‘above average’ year when dividends are included. The average returns are based upon the 2024 Vanguard Index chart 30-yr returns and, for the FTSE, the 20-yr return.
Index
2024 Index Return
2024 Total Return (inc. Div)
Av. Yearly Total Return
ASX 200
7.5%
11.4%
9.1%
FTSE 100
5.7%
9.7%
6.9%
S&P 500
23.3%
25.0%
11.1%
The beautiful histogram of annual ASX 200 (and proxies) returns (that include dividends) from MarketIndex.com.au has been updated for 2024. Slack Investor is always pleased with an addition on the positive side of the ledger – he notes that there are many more positive years than negative – this also helps his disposition.
Historical Annual Returns of the ASX 200 (including dividends) – Source: MarketIndex.com.au
A similar pattern with the S&P 500.
The last 151 years of annual returns (without dividends) for the S&P 500 Index – From visualcapitalist.com
For both the S&P 500 and the ASX 200, 19% of calendar years delivered a negative return. Therefore, on average, we can expect a negative return for one in every five years.
2025 Predictions?
Slack Investor is no seer. The Financial Press has come up with a range of views for 2025. In a very 2025 move, Slack Investor asked the AI Bot Perplexity for its predictions for the S&P 500 for 2025.
Based on various Wall Street analysts’ predictions, the S&P 500 is expected to deliver positive returns in 2025, with estimates ranging from approximately 9% to 20%. – Perplexity
From experience, Slack Investor knows that the financial press predictions are not very good. Perplexity cautions that the past S&P 500 predictions have generally been inaccurate and unreliable.
Whatever 2025 brings, Slack Investor will take the short-term returns on the chin – he does rely on positive returns in the long-term. As the chart below indicates. If you held a World Index Fund such as Vanguard MSCI Index International Shares ETF (VGS) for 5 years, you would expect positive returns on 88% of occasions. Longer holding periods will almost certainly yield you positive returns. VGS has a relatively low management fee of o.18% and does not hold Australian shares.
The incomparable cartoonist David Rowe capturing Donald Trump in the Australian Financial Review taking the Republican party for a swim in the sewer.
The Clown in Chief – Stable Genius? Great Investor?
Far be it for Slack Investor to disparage the wisdom of the majority of voting Americans that have just elected Donald Trump for four years as their president. Despite Trump declaring himself as a ‘stable genius’, my mother wisely used to say that ‘Self-praise is no recommendation’.
There is some contention on how much was available in ‘free cash’ but, if the available amount was invested in S&P 500 stocks in 1974, PolitiFact estimate that it would be worth at least $3 billion today. Using different initial estimates, the National Journal estimates that passive investing in stocks could have enriched Donald by $US8 billion. So, it seems that Donald was destined to be a billionaire – whether investing in real estate – or the stock market.
“Bloomberg puts Trump’s current net worth at $2.9 billion, Forbes at $4.1 billion. The National Journal has worked out that if Trump had just put his father’s money in a mutual fund that tracked the S&P 500 and spent his career finger-painting, he’d have $8 billion.” – Source: National Journal
To further harp on about the miracle of compound interest , there are huge advantages in starting to invest at an early stage. The chart below contrasts the case of Investor 1 at age 25 and investing $5000 per year for 10 years – then stopping, and allowing the compounding interest to do its work. Investor 2 doesn’t start his investing quest till the age of 35, and invests $5000 per year for 30 years. He never catches up to Investor 1.
Of course, Slack Investor is all about personal empowerment and the chart above rings the bell on starting your investment journey as soon as possible. In the journey of life, you may be one of the lucky ones to receive a gift or inheritance along the way – this advantage is huge! Slack Investor acknowledges his privilege and was given a gift from his grandfather’s estate equivalent to 30% of a year’s salary in his early thirties. The gift went straight on my mortgage.
This makes Slack Investor ponder about the help that a monetary gift can bring. Slack investor is all for self improvement, through education or travel. However, if given a gift of money, he would recommend, at least, using a good portion of it to reduce any debt – or invest. But do it now.
December 2024 – End of Month Update
OK, someone must have been naughty! The year closes and there was no December ‘Santa Rally’ this month. All followed markets fell. The ASX200 down 3.3%, the FTSE100 down 1.4%, and the S&P500 down 2.5%. Slack Investor remains IN for the FTSE100, the ASX200, and the US Index S&P500.
I haven’t yet done the maths on the market yearly gains that include dividends. In raw terms, for calendar year 2024, the ASX 200 was up 7.5%, the FTSE 100 up 5.7%, and the S&P 500 up 23.3%.
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.
My Dad was an amateur finance bloke and would often spend the quiet hours of the night with a notebook and reading matter that would usually have the theme of unlocking great wealth for his family. One of his sayings was:
‘Money Makes Money’ – My Dad
We were from a large family and there were always sufficient ‘outgoings’ to make sure that my Dad never really got to test the theory on his own funds. But, he believed that if only he could amass a chunk of money, then this could be invested wisely and, it would keep on growing and, he would never have to worry about money, ever again!
He had seen many examples of the rich getting richer. People with money increasing their wealth in a seemingly effortless fashion e.g. A Sydney harbourside home bought for $10 million selling for $26 million four years later. He was also a fan of Noel Whitaker and bought one of the first editions (in 1987!) of Noel’s great book Making Money Made Simple. My Dad understood the simple truth of saving more than you earn, investing these savings and letting the compounding do its work over time. Although it takes more time than harbourside investing, Noel’s advice still holds up.
I have since learned that my Dad might have got the ‘money’ quote from Benjamin Franklin who, expresses the full beauty of the compound interest process.
“Money makes money. And the money that money makes, makes money.” – Benjamin Franklin
So, it is not only the money that you invest, but all the earnings are earning too.
The one-eyed political investor
Let’s suppose you were such a committed US political investor that you only had funds in the market when ‘your president’ was in power – and, quickly withdrew your investments when the other team got in. Using 70 years of S&P 500 data shows that you might be better off if you were a Democratic investor. However, your gains would be tiny compared to the situation where you were more relaxed and just kept your money in the market – regardless of President. The lesson is, that time in the market is the key.
Investing in the US S&P 500 index from Jan 1953 to September 2024- Source Financial Synergies
It is time in the market that matters – not who you vote for!
The following pair of charts presents another way of looking at the effects of one-eyed political investing, either Democrat or Republican, over a 10-yr time frame and also, a 70-yr period. The time periods are different to the above chart and hence the different final dollar totals.
If you invested ONLY when your political party was in power, you would be much worse off.
Using S&P 500 and proxy data for 10 years and 50 years till December 2023 – Source: Steelpeak Wealth
Slack Investor has seen the shape of the green curve on the right hand side before. It echoes the hundreds of compound interest charts that I have looked at for inspiration. It starts flat and then rapidly increases with time.
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” – attributed to Albert Einstein
Let’s say you managed to save $10 000 per year and you invested the money with an average return of 10%.
The blue line indicates the value of investing $10 000 p.a. and, compounding over 30 years. The green circle is where your interest earnings start to exceed the amount of your own money invested – Source: A Wealth of Common Sense
The brown line shows savings of $10 000 p.a., for 30 years, amounting to $300 000 of your money. The grey line represents the total compound interest on your investments. For the first 15 years you think you are getting nowhere – then the compounding kicks in with the help of time – your money plus earnings on that money plus time. Using the above assumptions, the total accumulated amount would be over $1 660 000.
The 10% earnings seems a little wishful. Although, past 30-yr averages for US shares, International shares, Australian stocks and Australian Listed property are, respectively, 11.1%, 8.2%, 9.1%, 7.8%. If your investments averaged 8% p.a., the total value of your investments would be $1 233 449 – Not Bad! However, life is not really like an Excel spreadsheet.
Slack Investor’s case study of compounding
A real-life example of compounding returns can be found in Slack Investor’s own tracking of Net Worth. He has diligently tracked his Net Worth (Assets – Liabilities) for 34 years since 1990 using the free software Microsoft Money Sunset International Edition. There is no magic in this chart – except for the miracle of compounding! As a family, we achieved a savings rate (including superannuation) that varied between 20% and 45%p.a. of take home salaries. During this time we have had home loans and have always been investing.
Slack Investor’s (+Ms SI) Monthly Net Worth Chart over the 34 years of saving and investing since 1990 – Microsoft Money
Even though Slack Investor is familiar with the concept of compounding interest – he is continually astonished with the spectacular gains in net worth over the latter years.
My Dad was right … Money makes Money! Start saving and investing now and get on this ride!
November 2024 – End of month update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
To Slack Investor’s bewilderment, in what can only be described as a ringing endorsement for Trump economic policies, the S&P 500 raged ahead by 5.7 % in November.
For the ASX 200 (+3.4%) and the FTSE 100 (+2.2%) – it has also been a great month.
Slack Investor was taught to appreciate gifts and … who doesn’t get a little bit excited when they encounter free stuff. Australia offers many lifestyle advantages to those who live here. The Australian Government also offers a few financial tax gifts … for free!
There is no tax for any capital gains on your principle residence in Australia. As those lucky enough to be in the property market, tend to change houses every 11.3 years (9.6 years for units), there are opportunities to passively increase your property stake without incurring any Commonwealth taxes.
However, the cash strapped state governments have got their hands on this free gift by applying Stamp Duty (Tax) to property purchases. These stamp duties can be substantial, For a $700K dwelling , a non first home buyer will pay around $25K (NSW, Vic, Qld, Tas), and over $30K in some states/territories (SA, NT).
Your Super after 60 – A ‘Solid Gold’ Tax Gift (for now)!
For most people, an income stream from superannuation will be tax-free from age 60 – MoneySmart.gov.au
Up to the TBC limit – all earnings (Dividends, Distributions, Capital Gains) from your retirement phase Account-based pension are not taxable – This is a great gift to retirees!
Using the Super Balance Detective calculator from Superguru, you can see exactly how your super balance is tracking. ABC News have an excellent article How does my super compare to others? where references are made to the ASFA ‘comfortable retirement’ standard. All of these sources were used to make the following chart to measure how your current super balance measures up for retirement.
The Red line was generated as a track towards a $1.9m super balance at retirement. Although the red line super numbers are, admittedly, ‘heroic’. Readers of Slack Investor would always like to aim high for an independent retirement – and try to get at least towards the $1.9m in super at retirement that will maximize this tax-free gift.
A chart to see if you are on track for a ‘Comfortable’ Retirement (Yellow Line), or on a path for maximum allowable tax-free income (Red Line). The Red Line was calculated using an earnings figure of 6% p.a. The Green and Blue Lines are the average amounts of super that Men and Women have (ATO Figures 2021) – Click image to enlarge.
Using the 4% rule, a $1.9m super balance at retirement will generate a $76 000 tax free income each year. This would be a ‘Very Comfortable’ retirement – but there may be a few changes in the wind.
But Wait … Division 296
This all sounds too good to be true … You’re right! The legislators are coming after this gift.
The Australian government is considering a very muddled legislation known as Division 296 – which aims to target large superannuation balances. They reference Total Superannuation Balance (TSB) for this proposal. The sum of any accumulation accounts plus any pension accounts. The legislation is currently held up in the senate.
Division 296 tax is imposed at a rate of 15 per cent on a percentage of earnings equal to the percentage of superannuation balances that exceed $3 million – treasury.gov.au
The concept behind this is very reasonable. Slack Investor doesn’t object to the idea of tax on large super balances. Super should ultimately be all about funding your own retirement – and not be used as a tool to preserve wealth for your estate.
The $3 million threshold for the application of Division 296 needs to be indexed
In its current form, Division 296 unusually proposes taxation on unrealised gains – rather than being based on the actual taxable income. This is a first for the Australian tax system – it does not make sense and needs to be rectified.
My last post on “Salary Sacrifice” got me thinking on the other things that I did to help myself on the journey towards financial independence. I have before stressed the importance of your savings rate as the primary tool in the box – and, more than anything, this is the number that will affect when you become financially independent.
This figure can be calculated a few ways, but for simplicity, let’s define it as your retirement savings as a percentage of your take-home pay (disposable income after taxes and deductions) – this can be calculated using fortnightly, monthly, or yearly data.You can work out your own savings rate or, if you are in a stable relationship with a combined goal, include your partner’s savings and take-home pay.
SAVINGS RATE (%) = 100 x (Total amount of Savings put aside for Retirement/Take-home Pay)
This savings rate is the percentage of your after tax income that you must be putting towards retirement – and it defines the number of years that you have to work until you can sustainably generate your expenses from your investments. There are some assumptions for the following chart:
This magical curve is presented below to bring a bit of clarity to your goal. The object is to get to the stage when your annual return on investments (Passive income) cover 100% of your expenses. This represents the beautiful state of financial independence.
From The Escape Artist – using the conservative assumption of a 5% return on your retirement portfolio after inflation.
In Australia, with compulsory superannuation, 10% of your gross salary is deducted from your wages. Taxation rates will vary, but lets just say that 10% of your gross salary is the equivalent of about 15% of your net salary (disposable income). You add your superannuation to any other retirement saving that you are doing to get your total amount of savings put aside for retirement.
Starting from scratch, from the above graph, if you worked continuously, and only relied on compulsory superannuation you enter the full-time work force and you are 42.8 years away from a retirement – where your living expenses are covered by the passive income from your retirement savings. In other words, if working continuously, a 22-year old starting full-time work will have enough passive income to cover expenses when reaching the age of 64.8 – relying solely on compulsory super.
In Australia, there is also the aged pension to kick things along after age 67. Obviously, if you want to retire sooner and have a bit extra for holidays, and to allow a bit of a safety margin, and be financially independent – You will have to do some extra savings towards retirement yourself.
How are people going with their savings rate?
For Australians, the compulsory superannuation system provides a sound base for retirement savings (with a working life of 42.8 years). This doesn’t factor in the government funded aged pension – subject to a means test. Currently the pension (September 2023) is $28,514 per year for a single person – But who knows if this will still be available at present levels in the future. It is best to plan for your future without it – and then accept it as a bonus if you qualify.
Although this sounds OK, any disruption to your working life (ill health, family, education, retrenchment, etc) will be a real setback to your retirement plans – Any work breaks will require additional savings for your retirement. In the US, the “average” savings rate was between 5-10% for many years. Despite some impressive savings rates during COVID-19, in July 2023, the personal saving rate in the United States amounted to 4.1 percent.
You would have to say … this does not bode well for a satisfying retirement for the “average” US Citizen.
What was the Slack Investor Savings Rate?
Rusted on followers of this blog will recall that I had a bit of a delayed start to thinking about retirement. I had just arrived back in Australia after a 6-year working holiday overseas. I was aged 30, broke, and the only thing I knew was that I didn’t want to continue working in the field that I was trained in – high school teaching.
Clearly Slack Investor had a bit of work to do. Once I was in regular employment again, I set about getting the financial building blocks in order. Emergency fund, house deposit … and then savings for my retirement. I did this mostly using salary sacrificing into superannuation and building up my own private share portfolio.
There is nothing Slack Investor likes more than burrowing into my financial history using the excellent and free “Sunset” international release of Microsoft Money. I use the Australian Version. I have been using this software to track my finances since 1990 (33 years!)
Including superannuation contributions, my savings rate for retirement fluctuated between 20% and 45%. From the top graph, this represents a shifting rate that was equivalent to an overall retirement goal that required between 36.7 years and 19 years of working. Since “ground zero” at aged 30 and some extra education, I ended up working mostly full time for 28 years. Luckily, I had found a job as meteorologist that I really enjoyed.
This is not the “hard core” road to financial independence (i.e retire at 35, etc) – but Slack Investor thinks a reasonable compromise with the competing priorities of raising a family and buying a house.
Savings Rate is so important. Determine what your own savings rate needs to be to achieve your retirement goals – and automate your savings deductions as much as possible – and get cracking!.
December 2023 – End of Month Update
Happy Days. The year closes and, Slack Investor was definitely not naughty … a big December “Santa Rally” this month. All followed markets rose. The ASX 200 up a mighty 7.1%, the FTSE 100 up 4.0%, and the S&P 500 up 4.4%,
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.
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.
A 1999 extract from The Sydney Morning Herald showing a 13-yr old Chris Brycki – smartcompany.com.au
Slack Investor will admit to being less than young … but I am still capable of being a “Fan boy” when I see something impressive happening in the financial world.
After a series of schoolboy stock picking successes – winning the ASX’s Share Game a remarkable 3 times and, at university, he entered the JP Morgan Trading Competition, which he also won several times. The talented Chris “the Brick” Brycki, launched into a career with stockbrokers and financial houses. After a while, he started to question the long term performance of fund managers.
“… The problem is that over time, even by being right, the value added is not big enough to counteract the 1% fee that a lot of these fund managers charge.”
Chris founded Stockspot in 2013 as an alternative way to invest. Their Robo Advice model offers a low-cost automated alternative to traditional fund managers and advisors. After a simple online survey to determine your investing stage and risk tolerance, an investment portfolio type is recommended to you.
Chris (and Stockspot) have come up with the breathtakingly simple, yet genius (Both Slack Investor and Donald Trump have a loose definition of genius), strategy. After researching thousands of ETF’s and, based on exposure, performance and low fee costs – Stockspot has selected just 5 of them as the building blocks for a range of different portfolios. The portfolios are based on risk tolerance, financial situation and the investor’s appetite for volatility. The five component ETF’s are in Australian Shares (VAS), Global Shares (IOO), Emerging Global Markets(IEM), Australian Fixed Income (IAF), and Physical Gold (GOLD).
The five ETF’s that Stockspot use to build their portfolios (1-yr Performance is to 13Oct 2022) – most of these ETF’s have a $500 minimum if you are investing directly.
It is best to disregard the above 1-yr performance – It has just been a bad year for most assets. The ETF management fees are low (depending on ETF complexity), there is good long term performance (Growth since Inception) and they have selected Physical Gold for inclusion.
Slack Investor does not naturally lean into Gold as it is a speculative, non-income producing asset. However, I might have to change my mind here. The reason Stockspot include Gold in all their portfolios is based upon historical data and the way gold tends to outperform in times of crisis. The results in this last year performance of +7.34% for Gold, speak for itself – as other asset classes flounder.
A chart showing relative risk and return (grey line) of a portfolio varying between 100% Australian Bonds and 100% Australian Shares. The Stockspot portfolios have historically yielded lower returns than 100% Australian Shares) – but only slightly in their most aggressive Topaz portfolio. Overall, through their diversification, the portfolios represent much lower risk.
5-yr annual performance (After Fees) – to 30 September 2022 – From Stockspot
There are fees involved for Stockspot to manage your money. For a balance of $200000, they amount to 0.66%. At first blush, these fees (on top of the ETF fees) sound a bit steep to Slack Investor. However, for all types of investors, with a time horizon of at least 3-5 years, for a stress-free place to put your money, this might be exactly what they are looking for. Stockspot do a tailor-made portfolio construction, all the re-balancing of assets and, they take care of all brokerage costs – Not Bad! They even have zero management fees for children accounts up to $10,000 (for under 18s) and the ability to dollar cost average with regular top-ups.
Stockspot does not earn fees from or have a commercial relationship with the ETFs we recommend. We don’t pay professionals for recommending our service to their clients.
Slack Investor can think of lots of situations where people would like a decision-free, low-fee, diverse investment that is designed to grow in the long term. Well done Chris Brycki (and Stockspot), for advancing the investing cause with particular attention to keeping the fees down … you are a Slack Investor Hero.
October 2022 – Mid-Month Update
Despite the above discussion, my small-scale market timing experiment continues until its projected end in 2024. My frustration with this experiment continues – as it often goes against one of Slack Investors firm beliefs. If you can avoid it – Do not sell an asset when it is undervalued. Using historical CAPE values, at the end of September 2022, the UK Index (FTSE 100) was 13% below its long term mean, the US Index (S&P 500) was 9% above its long term mean, and the Australian Index (S&P 500) was 7% below its long term mean.
At the end of September 2022, Slack Investor was on SELL ALERT for Australian index shares (ASX 200), the US Index (S&P 500) and the UK Index (FTSE 100). Each of them had broken through their monthly stop loss.
I have a “soft sell” approach when I gauge that the market is not too overvalued. I generally will not sell against the overall trend but monitor my index funds on a weekly basis once the monthly stop loss has been triggered.
Well … I can see no obvious up-trend at the end of the week for the US and UK marketsand will exit at the end of week price of 3583 for the S&P 500 and 6858 for the FTSE 100. I am still justhanging in with the ASX 200 as they had a strong finish to the week.
The Index pages and charts have been updated for the UK Index and US Index.
Randall Reeves encounters a storm in the Indian Ocean in 2017 – Is this what the current stock market turmoil feels like?
Slack Investor loves finding out about remarkable achievements. He came across the inspiring story of Randall Reeves who set himself the task of doing a solo “figure of 8” circumnavigation around the Americas and the Antarctic. This 64 400 km trip encompassed both polar regions and was achieved solo, in the 14m boat “Moli”, in 384 days.
… he (Randall) hit a severe storm in the Indian Ocean. Waves were breaking 200’ (61m) to 300’ (91m) in each direction, and his boat got knocked down so intensely his mast was fully submerged, breaking a window in the pilot house and flooding his electronics.
I mention Randall Reeves achievements as he set himself a difficult challenge, that no one had achieved before, and succeeded on his second attempt. All we investors have to do, is pick a course to financial independence – and just keep going. Our boat might suffer a few perils along the way …. but we trust that it is a sound vessel – and it will get us home.
Bear Markets
The 9 MSCI “All Country” World Index Bear markets in the 42 years since 1980 and January 2022 With an overlay in grey of the actual MSCI AC Index. – Vanguard
Downturns aren’t rare events: Typical investors, in all markets, will endure many of them during their lifetime.
Slack Investor can speak with some experience here, as I have been an investor through all of the above bear markets … and they are never any fun! But, I have learned that … they all pass – and the stock market recovers, and always reaches new highs. The sometimes frustration of just “holding on” to your shares in a falling market must be weighed against the stresses of trying to time the market.
Keep on Course
Slack Investor has had mixed success in his timing the market experiment. The experiment is limited to index funds (Less than 3% of my Portfolio) and will run for another 2 years to make it a 20-year trial.
At the end of September 2022, my Index Timing strategy has outperformed the Australian Index (+1.4% p.a.) and the UK Index(+1.9% p.a.), but underperformed the US Index (-0.3% p.a.). My current feeling is that when considering that “time out of the market” means a loss of dividends, it is not worth the stress and effort and I will probably abandon the experiment in 2024 – after a 20-yr trial. The bulk (97%) of my Investments portfolio is run with the strategy of trying to buy good companies that are growing, tinkering a little, but generally just holding on!
The world MCSI AC Index is dominated by US companies (61.3%). The current 2022 World MCSI ACWI bear market is not shown in the above chart. Also, there is some argument whether the 2020 “Covid Crash” qualifies under the generally accepted definition of a Bear Market – a decline of 20%, or over, that lasts at least 2 months.
We humans naturally feel the need to do something when we see our investments fall in value. Slack Investor does not know if the worst is over, probably not! Slack Investor does know that, if you can avoid it, it is generally not a good idea to get rid of your risk-exposed assets during times of downturns – you are selling your assets cheaply in these times.
Vanguard have (below) kindly extracted the Bull markets (shaded in green) from the Bear markets (shaded in brown) for the MSCI All Country World Index since 1980 prior to January 2022. The Bull’s prevail and these pesky Bear markets will eventually pass – This chart is reassuring.
The Bull (shaded in green) and the Bear markets (shaded in brown) for the MSCI AC World Index since 1980. The gains/losses are expressed in percentage terms. – Vanguard
The World Index (MSCI AC), the S&P 500, the Dow Jones Industrial Average, and the Nasdaq are now in a bear market, and the S&P 500 has closed at a new 2022 low.
We might not be on a solo circumnavigation through dangerous waters … but the lesson here is to prevail. Tighten the belt if you have to, you have a plan! Endure the situation and try to distract yourself from the stock market with life’s enjoyable things.
The stock markets will do what they always have done, oscillate between over-priced to under-priced. The long-term gains provided by holding shares are well established. If you are still working, your regular saving and investing will be buying lots of shares through dollar-cost-averaging.
If you are retired, in these tough times, you have your stable income pile to help with your living expenses. There will be better times.
September 2022 – End of Month Update
Despite the above discussion, my small scale market timing experiment continues. Slack Investor is on SELL ALERT for Australian index shares (ASX 200), the US Index (S&P 500) and the UK Index (FTSE 100).
I have a “soft sell” approach when I gauge that the market is not too overvalued. I will not sell against the overall trend but monitor my index funds on a weekly basis once the monthly stop loss has been triggered.
All my followed Index funds have fallen below their stop loss values. Big monthly falls for the ASX 200 (-7.3%), S&P 500 (-9.4%), and the FTSE 100 (-4.1)%. Time for some distraction from the market carnage. There will be better times.
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 recalculated.
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.
Everyone has heard about Albert Einstein – The theoretical physicist that came up with the famous relationship between Mass and Energy ( E = Mc2 – where c is the speed of light in metres per second). He also came up with ground breaking work in relativity and quantum mechanics. As a student of physics in my younger days, Slack Investor was in awe of this wild-haired genius but, even understanding the very basic concepts of general and special relativity at university … just made my head hurt.
“There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.”
Albert Einstein
Einstein had a brilliant mind, the 1921 Nobel prize winner was instrumental in developing new ways of looking at energy, time, space and gravity. He often would construct a “thought experiment” to help him visualise the difficult concepts that he was tackling. I will try to explain one of his many thought experiments
Einstein’s elevator thought experiment
The first part of Einstein’s elevator thought experiment is the “equivalence principle” – where Einstein concludes that there is no difference between gravity and acceleration.
To an observer in an elevator drifting along in space experiencing weightlessness. If some “being” attached a rope to the elevator and then started pulling it along with the same acceleration force that gravity provides (9.8 m/s per second), the experience of someone inside the elevator would be exactly the same as if he was in Earth’s gravitational field — they are the same thing to the elevator man.
Because of this acceleration, if a light beam entered one side while the elevator is moving, the beam would appear to drop or curve down as it crossed the elevator. Einstein postulated that light would behave in the same way if the elevator was in a gravitational field. He concluded that gravity could ‘bend’ light.
This prediction was tested by Arthur Eddington in 1919 who devised a very clever experiment during an eclipse that demonstrated a shift in locations of distant stars when recorded during the day (when light would have to move past the sun’s gravitational field) compared with night time measurements.
A drawing showing Eddington’s marvellous experiment. The sun’s gravity really did bend starlight just as Einstein’s theory predicted.
Einstein proposed an extension of this concept with the introduction of the idea of “black holes” in 1916. These strange dense objects have a gravity that is so strong, even light cannot escape their clutches. Black holes remained as theoretical objects for decades – the first physical black hole was not discovered until 1971.
Slack Investor volatility thought experiment
In these tough times where Slack Investor is currently getting a bit of a whack in his share portfolio, he has adapted a thought experiment on coping with volatility.
I go to the end of my driveway and construct a big sign for all the passersby. It says “Shout out how much you would pay for my house”
In this thought experiment, I imagine I am also sitting out the front in a chair and listen to the informed offers as people go past. There would be a great variance in the offers and whenever an offer is heard below what I thought it was worth, I would wince a little. After a while I would just get sick of it and tear down the sign and go back inside my house – completely satisfied that most of these people had got it wrong … and I am happy with my house – it represents a value to me that is higher than nearly all of those shouted offers.
This is exactly how I try to think my share portfolio in troubled times. I own mostly good companies with good management that are projected to increase earnings. Earnings are critical. People can shout out whatever they want about what they will pay for my small percentage of these companies. While their earnings story is basically intact, I will hang on to them.
Getty Images
“It is not that I’m so smart. But I stay with the questions much longer.”
