Risk vs Return | Slack Investor

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.

FUND	10-yr Perf (%)	5-yr Perf (%)	Fees 500K Pension	Fees 50K Accum.	TOT Fees 550K
Australian Super	5.1	3.5	2602	322	$2924
HostPlus	4.7	2.9	3043	404	$3447
UniSuper	4.8	3.5	2696	356	$3052
HESTA	5.4	4.3	3152	362	$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 Super	Fees – Pension	Fees 50K Accum.	TOT Fees
$500K Pension Fund	2602	322	$2924
$1m Pension Fund	4802	322	$5124
$1.9m Pension Fund	8762	322	$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.

Task	Amount
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.

Let’s Lay a Few Bricks … and Mid-Month Update

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 Brycki – Stockspot – Livewire

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.

Stockspot Building Blocks

Chris, founder and CEO of Stockspot, in 2020 – From smartcompany.com.au

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).

ETF	Symbol (ASX)	1-yr Performance	Growth since Inception	Management Fee
Vanguard Australian Shares Index	VAS	-7.92%	8.25%p.a (13+ years)	0.10%p.a.
iShares Global 100	IOO	-4.43%	7.37%p.a. (15+yearsr)	0.40%p.a.
iShares MSCI Emerging Markets	IEM	-20.59%	7.18%p.a.(19+ years)	0.69%p.a.
iShares Core Composite Bond	IAF	-11.42%	2.73%p.a.(10+ years)	0.15%p.a.
ETFS Physical Gold	GOLD	+7.34%	7.75%p.a.(19+ years)	0.40%p.a.

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.

Mixing it all up

Slack Investor has written about Stockspot before in terms of Robo Advice and their valuable Superannuation reports. By using these 5 ETF’s in various combinations, Stockspot is able to give their customers a combination of returns and risk at a relatively low cost. There are even sustainable versions of each of the below portfolios available. As an example, the moderately conservative Sapphire portfolio is constructed with the following portions.

VAS: 27.2%
IAF: 35.2%
IEM: 14.4%
IOO: 7.9%
GOLD: 14.8%

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.**

After fees, over a 5-yr period, Stockspot has outperformed 99% of similar funds over 5 years.

AMETHYST Conservative	SAPPHIRE Moderately conservative	TURQUOISE Balanced	EMERALD Growth	TOPAZ High growth
3.1% p.a	4.8% p.a	5.3% p.a	6.1% p.a	6.8% p.a

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.
Stockspot

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

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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 markets and will exit at the end of week price of 3583 for the S&P 500 and 6858 for the FTSE 100. I am still just hanging 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.

Retirement Income

I am hoping that your retirement does not upset as many people as in this James Gillray (1756-1815) painting of “Integrity Retiring From Office”. You can hopefully avoid this by leading a good life and providing yourself with income for this wonderful stage of your life.

There are lots of ways to do this – Slack Investor likes to separate his non-house assets into a Stable Pile and an Investment Pile in his Self Managed Super Fund (SMSF). Most of the commentary on this website has been about the Investment pile as this is the most exciting – and produces the most gains – and lately, the most losses. My Investment pile is volatile as there is greater risk (and opportunity for growth) in this part of the portfolio.

The Stable Pile is mostly to supply me with guaranteed income during the market downturns. Slack Investor’s Stable pile consists of Cash, Term Deposits, An Annuity, Fixed Interest, Real Estate and Bond ETF’s, and some dividend-producing consumer-staple shares.

If the previous financial year has been a good year for investments, my next years annual income requirements can be withdrawn from the investments pile. If you get a bad year for investments, then, I dip into the stable income pile. I try to keep my ratio of Investment Pile to Stable Pile at about 70%:30% and I roughly rebalance at about this time of year (July/August/September).

Using this method, you are always selling from your investments pile when the market is high and buying when the market is low
Slack Investor – A Further look at three pile theory

This method suits Slack Investor, but there are other ways to provide yourself with income in retirement.

Dividends

The well known Australian investor Peter Thornhill, is a great proponent of using dividends to provide retirement income. His MySay articles are well worth a read. Peter maintains that dividends supply an inflation-protected, income that doesn’t vary as much as stock prices do. He supports this strategy by keeping sufficient cash in his superannuation account to fund the next 3 years minimum pension withdrawals (For the Australian superannuation system) – this helps avoid forced selling. The rest of his fund is in Industrials and Listed Investment Companies (e.g. Argo (ARG), Whitefield (WHF)). He has tested his strategy through market cycles and his strategy has been vindicated through the Covid-19 downturn with even some LIC’s using maintained profits to keep dividends going.

Whitefield Ltd is a Listed Investment Company (LIC) that has generally maintained its dividend Per Share (DPS – blue columns) for the past 50 years – even during periods of downturns where the Earnings Per Share (EPS – Red line) of its contributing companies were declining. From Peter Thornhill

Lifetime Annuity Payments

There are many different types of annuity. Annuities have not been very popular in Australia due to their pricing, relative complexity and inflexibility. Challenger has a few of these products available in Australia with rates at September 2022 for a lifetime inflation-protected annuity of $5104 for a 65-yr-old male for every $100000 invested. There are other options for payments that can be either deferred or market linked. Although you can access these annuities directly through their website, the current model that Challenger prefers is access through a financial advisor.

Retirement Income Stream products

Way back in the Australian 2016/17 government budget, Treasury proposed a series of reforms that included removing barriers to innovation in retirement income stream products. This tinkering was brought about by the realisation that the Australian Super model was mostly fit for purpose in the “accumulation” stage – but was lacking in retirement income stream products that address Longevity Risk – the risk of outliving your savings.

Hopefully, with the benefit of compulsory superannuation, most people would have a pile of superannuation money when they retire – and a desire to turn that pile into income (after paying off any debts). Everybody wants to maintain their standard of living in retirement and would prefer something to invest in that would give them the peace of mind of having a guaranteed income stream for life.

At last some new products are staring to emerge from the super funds. Slack Investor was excited to come across the MyPension income stream from Equipsuper. It is a “set-and-forget” investment strategy that nicely mixes a bit of risk assets (to keep your pension fund growing) with more conservative elements (to maintain a more steady income). This fund uses a similar method to the Slack Investor strategy of using “piles” or “buckets”.

To use the Equip MyPension, you would have to roll your existing super into their fund on retirement. Your super is separated into three distinct investment ‘buckets’. The automatic rebalancing of this product would suit those who want to be a bit more “hands off”.

Equip MyPension option for maintaining a retirement income stream.

Cash – For regular income payments, usually comprised of three years income – about 20% of investment.
Conservative – Investments in low risk categories including cash and bonds – about 40% of investment.
Growth – Investments to grow your savings, subject to short term fluctuations – about 40% of investment.

The clever thing is how these buckets work together over time. When investment markets are good, any earnings in the conservative and growth buckets go into the cash bucket, locking in your gains (Automatically). If markets experience a downturn, we’ll leave any buckets that lose value untouched at the end of year, to allow them to recoup losses in future years.
EquipSuper MyPension

Slack investor has just two piles for his retirement – the Stable Income pile (Cash and Conservative) option and an Investments pile- and I do my own annual rebalancing. My investment pile is a bit more aggressive than the EquipSuper offering – more volatile, but Slack Investor likes to meddle and, is developing a “strong stomach”.

Three Pile Theory

– Adapted from ‘Three Mounds’ by Yoko Ono is displayed at the Serpentine Gallery on June 18, 2012 in London, England – From Getty Images.

With apologies to Yoko for interfering with her art, but Slack Investor first thought of his own “Three Pile Theory” back in 1989 when I had got myself a “Proper Job” and enough stability in my life to make the big plunge into Real Estate. At that time, I owned a few grains of dirt in my House pile (the Bank owned the rest), My income was OK, and my investments (which would later morph into the Slack Fund) contained a few thousand dollars in shares.

Now, 32 years later, Slack Investor still has these three financial pillars to keep himself steady.

House – Home ownership gives me great security and pleasure. The bank owned most of this 30 years ago – but now I have the upper hand! (~30% of Net Worth)
Stable Income – This used to be my job, but in retirement I have some stable income annuity style investment (~20% of Net Worth) that would pay my bills and maintain a basic Slack Lifestyle should Armageddon befall the stock markets for a few years. This income is supplemented by income from the Slack Portfolio.
Slack Portfolio Investments – (~50% of Net Worth) – Now currently in my Self Managed Super fund (SMSF) which is almost exclusively invested in growth companies. These are great businesses to be invested in if you have a long term horizon – however, stock prices can be volatile in these high Return on Equity (ROE) companies. I am currently retired and do not rely on the Slack Portfolio for stable income. Because of the stability of my other two pillars, I can be quite aggressive in the allocation of my investments in the Slack Portfolio – as I know I will not have to panic sell (for income) during any downturn.

Slack Investor didn’t really invent “Pile theory” – it has been around for a while in various guises – Three Buckets is a tried and true way to manage your retirement expenses by dividing your retirement stash into buckets of cash, conservative investments and more risky, growth investments.

House

My home may not feel like a palace to you, but to me, it is a whole Kingdom.
Prerona Chatterjee

There are some who argue that you are financially better off by renting over a 10-year period rather than buying. But for Slack Investor, the tax advantages – no capital gains tax on your own home in Australia; the leverage – banks are usually willing to lend at least 80% of the house value; the forced saving – your mortgage payment is a big monthly portion of your income which you set aside for a long period; and, the stability provided by home ownership make this a clear winner for me. “The Serenity” is just a bonus.

Stable Income

To cover living expenses and to give yourself “peace of mind” it is so important to have a slab of money that is not subject to the vagaries of the sharemarket. In Australia, if you haven’t enough super to go independently, you might qualify for a full or part pension.

If going the fully self-funded route, many advisors recommend your stable income should be in two parts. You should work out your living expenses for a year and then keep between 2 and 5 years worth of expenses in stable cash deposits – Let’s start with 3 years of expenses in accessible cash. The rest of you stable income pile can be in longer term cash deposits, bonds or REITS. Because the investments pile (Slack Portfolio) is in growth shares that can be very volatile, my stable income must be something that is not highly correlated to to the sharemarket.

Term Deposits– although interest rates are woefully low now on bank term deposits, it is still possible to get ~1% p.a. from some of the minor banks that still have the Government Guarantee for the first $250 000.

Vanguard Australian Fixed Interest Index ETF (VAF)

MER (0.20%) – Annual performance over 1/5 years – (3.81%/4.41%)

Vanguard Australian Government Bond Index ETF (VGB)

MER (0.20%) – Annual performance over 1/5 years – (4.08%/4.49%)

Challenger Fixed Term Annuity – Rates are pretty low at the moment, locking away a deposit for 5 years will earn a measly 1.65%.

Real Estate or Real Estate Investment Trusts (REIT) – these are a bit higher up the risk curve but as they produce income (rent) and can be associated with longer term leases – are usually less volatile than the share market. For example, Vanguard Australian Property Securities Index ETF (VAP) – MER (0.23%) – Annual performance over 1/5 years – (-13.3%/6.23%)

Investments – The Slack Fund

Because the Slack Portfolio is mostly in growth shares, I have steeled myself that this particular pile is volatile and changes value every day. I am prepared for a few low performing (or even negative) years in a row for this pile. Even great investors that have much more knowledge than Slack Investor have the occasional bad year – during some periods, share investments just perform poorly. I am accepting of this truth.

Because this Investment pile is mostly in my Self Managed Super Fund (SMSF), I am usually obliged to withdraw 4% of its total value each year – this percentage increases with age – but this payment is currently tax free for those over 60. I can use this income in a discretionary way. My living expenses should be covered by income from the Stable Income pile – and any other income is gravy.

Pile Rebalancing

Once you are in a house that you are happy in and hopefully will be near paying off any outstanding loans as you get into retirement – other than maintenance, you can leave this pile alone.

The Stable Income cash pile might occasionally need a bit of topping up from the longer term stable Income or Investments fund. Any dividend or interest income from your investments is fair game. The investment Slack Fund usually produces 2 -3% income.

Hopefully, with 3-years worth of living expenses in the stable income pile, you can ride out a few bad years in the share market and only sell shares to top up the stable income pile when the share market has had a good run. Ideally, you would only sell share assets out of this pile when the share market is above the long term trend line. However, realistically, from the chart below (in red) there are long periods when the market is below trend. Have no fear, your basic expenses are always covered by a mixture of stable income, interest and dividends.

The long term chart of the US S&P 500 with the dotted inflation-adjusted long term trend line – from seeitmarket.com

There are other piles worthy of attention such as Health and Relationships but the finance stuff is necessary too. So get the shovel out … and start working on those piles!

Cash is not King

My nephew is a carpenter and he would often gleefully say “Cash is King” when offered a cash job – no paperwork and no tax. This was fine for him as he was on a travel holiday and didn’t want the hassle of being on the books and claiming his tax back at the end of his holiday.

But, to the investor, Cash is not King.

If you hold too much of your wealth in cash, you won’t be able to keep pace with inflation, meaning your purchasing power will go down and it will be more difficult for you to achieve your goals.
Black Swan Capital

Slack Investor cannot argue that money in the bank is not safe, The government guarantees balances up to $250,000.

Cash is important for day to day expenses and your emergency cash buffer, “the cushion” to keep you going for about 2-3 months in an emergency. However, to get on the path to financial independence you must invest in appreciating assets.

Term Deposits, Bonds and Fixed Interest

For a relative, Slack Investor was trying to find a place where cash would earn a decent rate – without too much risk. There is not much around. Most transaction accounts pay no interest or 0.1% interest per year. If you are prepared to lock your money away for a year in a term deposit in a major bank, you might get 0.85%. One of the newer banks, Judo Bank, is offering 1.01%.

There are a few offerings in the bonds and fixed interest area. I ended up in the Vanguard Australian Fixed Interest Index Fund with a management fee of 0.24% and 1 and 3 year returns of 3.2% and 4.7%, respectively. The fund lends money to mostly government authorities – but, unlike term deposits, the returns are not guaranteed. A similar product is offered as an Exchange Traded Fund Vanguard Australian Fixed Interest Index ETF (VAF).

Growth Assets – Shares and Property

Higher up the risk curve are funds based upon share (equity) investments. In these funds or ETF’s the rewards can be higher – but the risks are also much greater. Only invest in shares or share funds with money that you can lock away for 3 to 5 years.

To grow wealth we must have exposure to growth assets such as shares and property.
Shane Oliver, AMP

Asset classes shown on a logarithmic scale for the past 120 years – From “5 charts to help you through COVID-19 investment fear” – Shane Oliver

Australian shares have returned on average 11.5% per year from 1900 to 2020. The incredible value of sustained compounding over long periods is shown by the dollar amounts achieved over 120 years – A $ 1 investment yielded $481, 910 for Australian Shares, $1017 for Bonds and a paltry $242 for cash. But these high returns on investment in Australian shares did not come without risk. Since 1900, Australian shares have had negative returns for two years out of ten.

A similar chart with data to 2016 shows that Australian residential property has a similar trajectory to Australian Shares (11.1% p.a.). There are many hidden costs to owning property – but that is another story. Lower on the risk curve, are Bonds and Cash.

Slack Investor acknowledges that people have different appetites to risk, but if you are in the fortunate position to be sitting on some cash in excess of your emergency fund … the current rates for term deposits encourage a first journey up the risk curve and consider fixed interest funds or ETF’s. For money that you wont need for the next 3-5 years, then shares have the best long term returns. If your time frame is longer, then a well positioned property has been a good investment.

“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”
H. Jackson Brown Jr. from Goodreads

Stocks for the “Long Run” and August 2020 – End of Month Update

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… It’s going to rain and it’s going to blow
But it’ll be all right, it’ll be all right, it’ll be all right in the long run …
Excerpt from the “Long Run” lyrics by Redgum (John Schuman) released in 1980.

Slack Investor looks at the shares that he owns occasionally and has a bit of a tinker. Earlier this year I had a portfolio review that saw a dumping of managed funds and high fee ETF’s. I also made an attempt to exit shares that I thought might be severely affected by gloomy economic times. However, sometimes it is good to lift the sights to the horizon and forget about the short term pricing of the market.

“Over the 210 years I have examined stock returns, the real return on a broadly diversified portfolio of stocks has averaged 6.6 percent per year.”
Jeremy J. Siegel, Stocks for the Long Run

Although the last financial year was a bit bleak for the median of super growth funds (-0.5%), Slack Investor has been around long enough to know that the gloomy times are periodic, and that, “In the Long Run” shares are a very good investment – as can be seen on the 28-year performance chart below.

This image has an empty alt attribute; its file name is 2020GrothFundsChart-4-MR-Jul20.png — *The Performance of the median Australian Superannuation Growth Fund over the past 28 years. A “Growth Fund” is defined to have between 60 – 80% of Growth Assets – From* Chant West

During my portfolio review I realised that over half my portfolio is in several companies that I would never sell – unless circumstances changed greatly! These companies usually have great management, a plan for growth, and an established track record in increasing Earnings per Share (EPS). Prices may go up and down, but great companies ride though all this and figure out a way to keep growing.

Coles (COL)

COL (2022 ROE 36%, 2022 PE 23) – With around 30% of all supermarket sales, Coles is one of the lucky retailers classified as essential and is getting a boost from COVID-19. This boost wont last forever, and, I cant see any big growth ahead. But, I can’t see myself selling this company as I visit it twice a week to “kick the tyres” and they are doing a good job. There is also the perverse satisfaction of knowing that if I am waiting at the checkout for a time … that it must be good for the bottom line!

Altium (ALU)

ALU (2022 ROE 32%, 2022 PE 56). The PE ratio of Altium has it priced for big future growth and it would be a stretch to buy it now. But this printed circuit board designer is a company for the times and it has a well defined, and so far achievable, global growth strategy.

Although relatively expensive (Forecast PE 56), Altium has no debt, a decent cash balance and keeps growing its profit margin and market share. In 2019, Altium spend 14% of its revenue on Research and Development – This is a commitment to growth in a changing industry.

Commonwealth Serum Laboratory (CSL)

CSL (2022 ROE 29%, 2022 PE 38) – Slack investor first bought into this company 10 years ago at around $30 and I have had the good fortune to add to my holding (at much higher prices!) along the way. CSL is expensive at a forecast PE of 38, but I can remember at my initial purchase in 2010, I thought it was expensive then! With great companies, sometimes you just have to hold your nose and jump in – they are rarely cheap! If it wasn’t already such a large part of my portfolio, Slack Investor would buy more CSL if I could get it below $300. The price chart below is reassuring.

Weekly chart of CSL over 5 years – From Incredible charts.com

Alphabet – (GOOGL)

(GOOGL – 2022 ROE 18%, 2022 PE 24). Alphabet is listed on the US-based NASDAQ exchange and needs an International Broker to invest directly (Commsec will set you up for a cost of 0.31% for trades above USD $10,000). For a growth company, Alphabet is not outrageously expensive with a forecast Price to Earnings Ratio of 24.

One of the first charts I look at before buying a stock is how its income has evolved – Thank you Market Screener. The GOOGL income chart below is typical of how I like to see them. A steady track record of 3 years growth of sales/income, and then a plan to grow income over the next 3 years.

Income and Forecast Income for Alphabet (GOOGL) – from marketscreener.com

A common theme amongst companies that I am reluctant to sell is their willingness to invest in new projects that might feed back into the earnings of the company. Alphabet spent a staggering US$ 16.2 Billion on research and development – 14.6 % of its revenue in 2018

BetaShares NASDAQ 100 ETF – (NDQ)

(NASDAQ Index – Current ROE 14%, Current PE 23) – Australian exposure to this index comes at a cost (MER of 0.48%) through the NDQ Betashares ETF, but Slack Investor thinks this is well worth it – my costs in owning GOOGL directly are around 0.43%. This ETF is Slack Investors favourite way to own International Tech stocks. With NDQ, you get exposure to 100 of the world’s best tech companies. The NASDAQ Index is a collection of growing household tech names e.g. Apple 13.9%, Microsoft 11.2%, Amazon 10.9%, Alphabet 7.2%, Facebook 4.5%. With a forecast PE of around 23, it still looks reasonably priced if tech world keeps growing.

August 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. Rises all round for Slack Investor followed overseas markets this month ( ASX 200 +2.2%; FTSE 100 +1.1%) In Crazy Brave USA, the S&P 500 had a monthly rise of an astonishing 7.0%.

At the end of August, the US S&P 500 had a 12-month trailing PE Ratio of 30.09 . The mean and median values are 15.81 and 14.83.

In the real world, the US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

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

FY2020 Nuggets and Stinkers and July 2020 – End of Month Update

“Just get things mostly right“
Slack Investor 2020 –

Not that I think Slack Investor is worth quoting – but I searched high and low for a quote that expressed the Slack aim. The great Warren Buffet got closest to the sentiment with “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – but I used this quote last year!

It is good for me to have a yearly display of my failures. It reminds me of the bumbling path of Slack Investor in the pursuit of financial independence. As for the nuggets, just get the foundations right … and luck might intervene.

“You can never be a first class human being, until you have learnt to have some regard for human frailty.”
Abhijit Naskar, Conscience over Nonsense

The percentage yearly returns quoted in this post include costs (brokerage) but are before tax. This raw figure can then be compared with other investment returns.

Slack Investor Stinkers – FY 2020

The Slack Investor Portfolio comprises of (mostly) high Return on Equity (ROE>15%) and high Price to Earnings (PE) ratio stocks. Historically, these companies are quite volatile as they are priced to account for future growth. If there is an earnings revision … or a change that would affect future earnings, then the price of the share usually plummets. Slack investor accepts that stinkers are just part of life when dealing with growth stocks.

Slack Investor has a look at his stocks on a chart (Thanks Incredible Charts!) every weekend – and, I eventually get the message if a stock price is moving lower and take the exit.

Rhipe (RHP) -22%

After being a star performer last year … this software technology company took a dive in share price this time last year. Slack investor bailed out in February 2020 – but not before taking a few licks.

Treasury Wine Estate (TWE) -13%

In Wine is Truth .. and this became evident at the start of this year as the global wine oversupply made it difficult for Treasury to raise prices. Their attempts to break into the US market were floundering and the stock price took a tumble. Slack investor “cleared the decks” in February 2020.

Centuria Industrial REIT (CIP) -11%

Centuria invests in industrial properties and was a victim of my COVID-19 portfolio trim. I sold out in April 2020 on my fears that the virus would affect tenancies. It seems that I took flight a little early as the stock price has rebounded 17% since I sold – Ah well … that’s investing!

Costa Group (CGC) -11%

Costa is agricultural company that grows and distributes mushrooms, berries, tomatoes, citrus, avocados and heaps more. My involvement with this company unfortunately coincided with a 2-year price slide due to a series of farming misfortunes. I parted ways with Costa in October 2019. Slack Investor held this stock for far too long. However, owning this stock taught me a lesson – avoid business that are “price takers” – where the cost of goods is set by seasonal factors or competitors. The best businesses have an exclusive product that people want and there are barriers to entry for other competitors.

Slack Investor Gold Nuggets – FY 2020

The other side of investing in companies that have a high Return on Equity, and with a track record of increasing earnings, is that you can sometimes expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values quoted below are “forward looking” and are analyst predictions for the year 2022. They were extracted from the excellent Market Screener site. These ratios are just predictions, but Slack Investor finds them very useful.

Appen (APX) +58%

APX (2022 ROE 19%, 2022 PE 32) remains a company that I don’t really understand but after taking profits and selling last year, I bought back in during November 2019 after a price fall and then a breakout from a “falling wedge”. Another excellent year for this machine learning and artificial intelligence company – Ignorance can be bliss!

Commonwealth Serum Laboratory (CSL) +31%

CSL (2022 ROE 31%, 2022 PE 32) is now the largest company on the ASX. Their blood products and expertise in gene therapy and vaccinations are used worldwide and there are projected increasing sales. Driving this fabulous company is a commitment to innovation. Spending on Research and Development is in the target range of 10 to 11 per cent of turnover – in an environment where a typical manufacturer will spend 2%. It is no coincidence that this company is doing well.

Alphabet (GOOGL) +30%

The Alphabet list of products is large … and getting larger. Everyday I use Google, GoogleMaps, gmail, android devices and YouTube. Alphabet (GOOGL – 2022 ROE 19%, 2022 PE 32) has just announced a quarterly rise in profits of 22% as it moves deeper into peoples lives. Alphabet and the other FAANG Stocks have been acting a bit like pirates in the multinational tax world. There are some regulatory risks on the horizon though. Nations are rightfully demanding a share of these tech giants revenue as taxation. There is also a bit of “pushback” by governments and media companies who want a fair share of revenue generated by their content. However, on the plus side, profits should continue to grow as advertisers are spending more to reach an expanding number of customers that are engrossed with their smartphones and YouTube.

A2 Milk (A2M) +26%

A2M (2022 ROE 28%, 2022 PE 29) sells A2 protein type branded milk, infant formula and other related products to the world. The actual benefits of the A2 only protein have been indicated in small studies but longer-term studies with larger sample sizes are needed. However, in the mean time, sales are increasing and the share price is still going north.

Honourable mentions for Slack Investor Portfolio stocks BetaShares NASDAQ Index NDQ, Integral Diagnostics IDX and BetaShares RBTZ that increased more than 15% in this financial year.

Slack Investor Total SMSF performance – FY 2020 and July 2020 end of Month Update

A tough financial year for shares through the COVID-19 financial crisis. Chant West reports the median of “growth” super funds struggled to a small loss of 0.5%. The FY 2020 Slack Investor preliminary total SMSF performance looks like coming in around 9%. The 5-yr performance is a more useful benchmark to me. At the end of FY 2020, the Slack Portfolio has a compounding annual 5-yr return of over 19%.

My wise mother used to say to me that “Self praise is no recommendation” So Slack Investor will meekly slink back to the couch and get prepared for what might be a tough time ahead in the share market. The full FY 2020 results and benchmarks will be expanded on next post.

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. A mixed bag for Slack Investor followed overseas markets this month ( ASX 200 +0.5%; FTSE100 -4.4%; S&P500 +5.5%).

The US S&P 500 has shown more resistance to gravity than the Trump hairstyle – but all parties must end some time. As the S&P 500 has moved more than 20% higher than its stop loss, I have adjusted the stop loss to 2965 from 2721.

The US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

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

November 2019 – End of Month Update … and Mayfair Platinum

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets had rises all round this month. The ASX200 (+2.7%), a recovering FTSE100 (+1.4%), and a booming S&P500 (+3.1%).

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 29.1%. This has been steadily reducing since a peak at 41% three months ago. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are “switched ON”

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

Mayfair Platinum – “Investing has changed” – No it hasn’t!

Full-paged ads spread across the Australian press in in the last few months. Mayfair 101 launches Mayfair Platinum. These ads were everywhere, paid plugs in the AFR, News Ltd, Finance sites, “influencers”, roadshow, and google ads.

There has been a barrage of advertisements in the press. Mayfair 101 says “We’ve been listening closely to investors who are frustrated by the sustained fall in interest rates. ” Their M+ Fixed Income product offers a juicy 5.45% for a 12-month term. Slack Investor is worried that this grand media campaign may fool some investors into thinking this vehicle is just as safe as bank deposits.

” M Core Fixed Income is a secured, asset-backed investment product that provides the benefit of the Group’s extensive diversification strategy coupled with our Australian real estate portfolio including our recent strategic investment in Mission Beach and Dunk Island. “
Mayfair 101 Managing Director James Mawhinney, commenting on one of their products – from the Mayfair Platinum site.

Hang on Mr Mahwinney … did you say “secured” … you definitely didn’t say safe! By a quick comparison of their products, it seems that you don’t even get security with a paltry $100K invest – you need $250K to get the “secured asset backing” of their M Core product.

Mayfair 101 launches Mayfair Platinum, it “provides customers the opportunity to earn return rates between 3.65 and 6.45% p.a.

Mayfair 101 has been aiming a recent massive ad blitz to cashed up investors who are frustrated with the low returns offered by bank term deposits. They have been very successful since they set up in 2017, rapidly growing their fund to $100m in April 2019 and aiming for $250m. Mayfair advertising is littered with lines like “Tired of term deposit rates?”, “A popular cash and term deposit alternative…”, “Do you qualify?” – this campaign has plenty of fizz.

Slack Investor knows a bit about North Queensland, and the beautiful Mission Beach and Dunk Island area. There have been a number of tourist booms in the past, but each time they have been defeated by either a tropical cyclone, distance to international airport, rising interest rates, or a domestic tourism downturn. Tourism investments are definitely risky!

As well as cyclone ravaged Dunk Island, the parent company Mayfair 101 has investments in technology and cryptocurrency companies, and according to the Guardian, another abandoned island, in Venice – an area suffering from heavy flooding this month.

“In the modern age of investing, we are mindful that profit-generation is no longer the sole benchmark for a company’s success”
James Mawhinney Mayfair 101, from The Guardian

Sorry Mr Mawhinney , I’m not sure where you live, but in the Slack Investor world, profit generation is definitely the most important benchmark! At best, the Mayfair products seem speculative investments that carry a good deal of risk – a long way from the safety of the government guarantee for bank term deposits (up to $250K).

One of the few advantages of getting older is that you get to see the cyclic nature of investment. A good reminder of 35 years of investor busts can be found in the Chanticleer Reviews. Mayfair … You’re “investor-facing division” is not getting any of Slack Investor’s money. Despite the slick presentations and corporate glitz – this, as my mother used to say, “has got a real smell about it! “

I cannot give financial advice, but Slack Investor would not invest in Mayfair Platinum, and, if I had invested, I would take out my money as soon as I could (while the Mayfair distribution and withdrawal record is still intact). I would try other types of investment such as higher yield industrial shares or industrial/office REIT’s if I wanted higher returns than bank deposits. These latter vehicles also have risk attached …. but, I’ll wager, much less risk than tourist property speculation, tech companies, and cryptocurrency plays.

It may take some years, but this Mayfair 101 thing … it’s not going to end well for the punters!