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.

Australian Shares – VAS – Vanguard Australian Shares Index ETF (fee: 0.07%)
Global Shares – IOO – iShares Global 100 ETF (fee: 0.40%)
Emerging Markets – IEM – iShares MSCI Emerging Markets ETF (fee: 0.69%)
Bonds – IAF – iShares Core Composite Bond ETF (fee: 0.10%)
Gold – GOLD – Global X Physical Gold (fee: 0.40%).

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.

FY2024 Nuggets and Stinkers and … July 2024 – End of Month Update

“I think it’s fair to say you can’t predict a straight line to victory. You know, there’ll be good days and bad days along the way.”
Dick Cheney, Vice President to George W. Bush from 2001 to 2009

Dick Cheney had a controversial career, one of his infamous bad days was when he accidentally shot a companion in the head on a quail hunting expedition. Slack Investor is delighted to report that, this year, he didn’t shoot anyone! In fact, FY 2024 was filled with good days to abundance.

The percentage yearly returns quoted in this post include costs (brokerage) but, the returns are before tax. This raw figure can then be compared with other investment returns. I use the incredibly useful Market Screener to analyze the financial data from each company and extract the predicted 2o26 Price/Earnings (PE) Ratio and Return on Equity (ROE). This excellent site allows free access (up to a daily limit) to their analyst’s data, on the financials tab for each stock, once you register with an email address.

Slack Investor Stinkers – FY 2024

Financial year 2024 was generally a “boomer”. All of Slack Investors followed markets (Australia, the UK and the US) have had a pretty solid year … especially the US! However, Slack Investor knows that stinkers are a part of the game, even in good years – and managed to attach himself to a few stinkers along the way.

Global X Battery Tech & Lithium ETF (ACDC) -15%

(ACDC –2024: PE 11, Yield 3.0%) I have owned this ETF for 3 years now – and I think I might have fallen for the “Theme Dream”. Despite some early promise in the “sexy” sector of electric cars and lithium batteries, this ETF has started to disappoint. There has been a string of bad news in the electric vehicle sector with an oversupply of vehicles. Both the EU and the US have slapped large tariffs on the Chinese EV exports – this has further slowed demand. Slack Investor is just holding on and has set a stop loss at $82. Current price is about $83, so I am very close to selling – and moving on.

Coles Group (COL) -8% (Mostly sold Nov 2023)

(COL – Forecast 2026: PE 19, ROE 32%) Coles is where I often buy my groceries and I like the idea that you can regularly inspect your holdings. However, Coles Group are profitable but not really growing. This company does not really belong in my investments pile, so I mostly sold this holding. I might buy some for my stable income pile if there is a future weakness in price.

Computershare (CPU) -5% (Sold April 2024)

(CPU– Forecast 2026: PE 16, ROE 36%) Computershare was a stinker last FY for Slack investor. In retrospect, I can’t believe I bought in again for further punishment. I keep falling for the high ROE (36%) and relatively low PE (16) for a tech stock. Might have been a little early here in folding again – the share price has risen about 12% overall in FY2024.

Slack Investor Nuggets – FY 2024

Nuggets were everywhere this Financial Year. Slack Investor continues to invest in high Return on Equity (ROE) companies with a track record of increasing earnings. Companies with these qualities sometimes behave as “golden nuggets”.

Pro Medicus (PME) +118%

(PME – Forecast 2026: PE 76, ROE 46%) Pro Medicus is a developer and supplier of healthcare imaging software and services to hospitals and diagnostic imaging groups. In 2019, Slack Investor met the CEO and co-founder of Pro Medicus, Dr Sam Hupert. I was impressed by his humility and passion for his great products. I’m obviously glad I bought in – but naturally wish I’d bought more! The very high predicted PE ratio (+76) is worrying but, in the past, product sales have just kept growing above expectations as PME expands into the US.

Altium (ALU) +106% (Sold pending takeover)

(ALU – Forecast 2026: PE 32, ROE 33%) Altium is an Australian based developer and seller of computer software for the design of electronic products worldwide. My ode to this great company expands on why I originally bought it and its great management team. Good luck with the new Japanese owners Renesas. For current holders, I think the cash payment per share is due today (1 August, 2024)

Goodman Group (GMG) +75%

(GMG – Forecast 2026: PE 23, ROE 12%) Goodman Group owns, develops, and manages (mostly industrial) properties all over the world. On a weekly bike ride, I go past a succession of Goodman warehouse properties – and they always seem to be thriving with activity. They even develop data centres that will hopefully be full of machines to manage the AI trend. Glad to be an owner.

Codan (CDA) +54%

(CDA – Forecast 2026: PE 20, ROE 21%) Codan is a technology company that specializes in communications and metal detecting. It is one of Slack investors core holdings that has taken him on what can only be described as a “journey”. A nugget in FY 2021 (+161%), a stinker in FY2022 (-58%) – and now back to a nugget (+54%). What has kept me in the stock was the low debt (generally) increasing earnings, and the high profitability (ROE 21%).

Supply Network (SNL) +54%

(SNL – Forecast 2026: PE 18, ROE 36%) Supply Network are a bus and truck parts distribution company using the Multispares brand. Although there are competitors in the big-vehicle parts business, what sets SNL apart from the rest is their great management and strict adherence to processes and efficiency. They have consistently held a profitability advantage over their rivals. They have maintained a high Return on Equity (ROE) of 36% even as the company has expanded and grown in price.

Alphabet (GOOGL:NASDAQ) +52%

(GOOGL– Forecast 2026: PE 17, ROE 25%) For more good things on this company that is everywhere. High profitability (ROE 25%) and the predicted 2026 PE of 17 makes this still a good buy at current prices – in Slack Investor’s head.

CAR Group (CAR) +52%

(CAR – Forecast 2026: PE 31, ROE 14%) Car Group is a collection of digital marketing vehicle businesses that are now in Australia, Brazil, Canada, Chile, China, Malaysia, New Zealand, South Korea, Thailand and the United States. The Australian business is still carsales.com. The ROE is slipping below 15%, but happy to hold on for now.

REA Group (REA) +39%

(REA – Forecast 2026: PE 41, ROE 32%) Like Carsales.com, REA has dominated the space left by the old newspaper classifieds in selling real estate in Australia and has continued to expand overseas. A high PE ratio (41) but while projected Return on Equity (ROE) remains high (32%), this is OK.

Wesfarmers (WES) +39%

(WES – Forecast 2026: PE 27, ROE 33%) Wesfarmers is Australia’s largest conglomerate. Great retail outfit (e.g. Bunnings) and chemical manufacturer. High profitability (ROE 33%) but like Coles, seems low on earnings growth lately.

Some honourable mentions to some top results this year that didn’t make the nuggets. BetaShares NASDAQ 100 ETF (NDQ) +32%; BetaShares Global Quality Leaders ETF) +27%; BetaShares Global Cybersecurity ETF (HACK) +26%; Dicker Data Limited (DDR.AX) +26%. A special mention also to a recent buy, Telix Pharmaceuticals (TLX) +23% in two months!

Slack Investor Total SMSF investments performance – FY 2024 July 2024 end of Month Update

Slack investor has just two piles of funds for his retirement – the Stable Income pile (Cash and Conservative) and an Investments pile. The Stable income represents just 25% of total retirement funds. I used to rebalance each of my piles after every year, but the stable pile now has enough in it that, together with dividends from my investments, could supply me with enough living expenses to last out an extended (3-yr) bad run of the stock markets – without having to sell stocks. The stable pile produces a moderate return of about 5%. The Investments pile is much more fun and the figures below represent (before tax) performance of my investments pile only.

After a difficult 2022, a solid 2023, some very good fortune was had with a ripper FY2024. Some fortuitous selections with growth stocks have really paid off (Thank you PME and ALU). In the Australian superannuation scene, the median growth fund (61 to 80% in growth assets) returned +9.1% in FY 2024. The ASX 200 chart shows a gradual climb after a shaky start for the financial year.

A record result for Slack Investor in his growth investments portfolio. His preliminary total SMSF performance looks like coming in at around +39% for the financial year. Including the relatively low returns from my stable income pile (~5%) – overall, my retirement funds grew about 30%. A very good year!

For Slack Investor, the 5-yr performance is a more useful way of measuring – as it takes out the fluctuations of yearly returns. At the end of FY 2024, the Slack Portfolio has a compounding 5-yr annual return of around 13%.

July 2024 – end of Month Update

The new financial year has started off positively for Slack Investor markets. The ASX 200 + 4.2%; FTSE 100 +2.5%; and S&P 500 +1.1%. He remains IN for all index positions.

I have taken the opportunity to adjust upwards the stop losses on all followed index markets. The prices have crept up to more than 15% above their old stop losses. See Index pages for details.

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

Corrective Lens and … October 2023 – End of Month Update

Last week, the ASX 200 has moved into correction territory to its lowest point since October 2022. Both the S&P 500 and the NASDAQ Index are already in technical corrections. The FTSE 100 is faring marginally better, down around 9% from its recent peak in February 2023.

In the world of stock markets, a 10% decline from a previous peak is known as a “Correction”. Never a nice time … but Slack Investor recommends that you just put on the big pants and get used to these things. Corrections are just part of the landscape of investing in shares and Slack Investor has often written about them – and the need to roll with them – if you are using stock markets to better your financial position.

On average, the (US) market declined 10% or more every 1.2 years since 1980, so you could even say corrections are common.
For the S&P500 – Covenant Wealth Advisors

In the Australian market, falls of 10% occur (on average) every two years – and can occur even more frequently.

If you can avoid it? – Don’t Sell

Throughout my investing career, I have been a net buyer of stocks. Selling only to raise some cash, or to shift out of one stock into a (hopefully) better performing one. Things are much the same in retirement – Though I seem to be trading less.

I have structured my portfolio into a stable income pile and the more adventurous investment pile. My living expenses are easily covered from the dividends from the investments pile and income from the stable pile. So I never have to sell shares when their value is discounted during a correction (>10% fall) or a crash (>20% fall).

This way I can reap the benefits of long term growth in the sharemarket. The data from 97 years of following the S&P 500 Index with a balanced (60% shares:40% bonds/cash) portfolio shows that, over a 5-yr period, the portfolio will outperform inflation 84% of times by an average annual amount of 5.48%. Holding the portfolio for 15 years, it has been ahead of inflation by 5.33% on 97% of occasions. Slack Investor would take those odds.

Balanced Portfolio – Long-term returns over inflation (US) – From Bob French – Firstlinks

Not for the faint hearted, but you can (historically) get an increase to returns by taking on more risk with a 100% shares portfolio. When calculated over a 15-yr period, The S&P 500 has been ahead of inflation by 7.08% (average p.a.) on 95% of occasions.

S&P 500 Long-term returns over inflation – From Bob French – Firstlinks

In light of the above two tables, Slack Investor shows indifference to these corrections … be patient – you will be rewarded.

October 2023 – End of Month Update

Slack Investor remains IN for the US Index S&P 500 and the FTSE 100. But is on SELL Alert for the Australian index shares – as the end of month stock price (6780) is below its monthly stop loss of 6917.

Slack investor is on SELL Alert for the ASX200 at October 31, 2023 due to a stop loss breach. 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.

Another negative month for Slack Investor followed markets (S&P 500 -2.2 %, and the FTSE 100 -3.8%, and the Australian stock market did the same (ASX 200 -3.8%).

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

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.

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”.

Market Timing and Share Market Valuation … and June 2022 – End of Month Update

Trying to time the market is a losing game

In addition to the trading … and mostly holding onto individual companies, Slack Investor has been running an experiment on market timing for Index funds in the Australian, UK and US markets. The Index funds have been doing OK .. but Slack Investor is generally just finding that timing markets is just too hard and is hinting at an end to the timing experiment in 2024.

As a recap on the experiment so far, I am still outperforming the “Buy and Hold” investor in all followed markets – but the advantage is slim. Per annum outperformance is 1.4%, 1.9% and 0.6% for the ASX, UK and US markets respectively. Not really fantastic results when you consider that I am missing out on the dividends that “buy and holder’s” receive when I am “timed” out of the markets.

The Slack Index “timing the market” method was devised with a lot of back-testing on 30-years of market performances and does really well when sustained bear markets occur as it gets out of the market at a hopefully early stage in the price downturn. Ideally, the Slack method should stay in the market for the smaller fluctuations (corrections <~10%) and get out of stocks before it becomes a full bear market. The problem with my current strategy is that I am getting “whipsawed” out of the market in these smaller downturns – and the big swings seem to happen so quickly that the damage is done before I can get off the couch.

Things were much easier in the accumulation stage – I had set amounts of money coming out of my pay each month that would be automatically invested into my trading account. With dollar cost averaging, if the market went down, it would just mean that I would be able to buy a greater number of shares – all good.

It is different in retirement mode … as, I am not a net buyer of shares now and, as I am usually am fully invested, it is difficult to take advantage of a lower-priced market. These days, the stock market downturns are just something to be endured.

A chart that caught my eye from Current Market Valuation is shown below. They have a developed a method to try to see if a market is over, or under, valued using the cyclically adjusted price-to-earnings ratio (CAPE). This is very similar to the way that Slack Investor has previously tried to work out the valuation of the Australian, UK and US markets.

S&P CAPE data showing the **1950-2022 average** (mean) **P/E value of 19.8** (baselined as 0%), as well as horizontal bands showing standard deviation bands. As of **June 24, 2022**, the S&P500 P/E ratio is 47% higher than the **1950-2022 average** – From Current Market Evaluation.

Current Market Valuation define the market as “Fairly Valued” if the CAPE Ratio is between between -1 and 1 standard deviation from the “average”. If the CAPE distribution is “Normal”, then the CAPE should be ranked as “Fairly Valued” about 70% of the time.

Slack Investor has developed similar charts – but only since 1982. I have used only a short time frame for this analysis as there are good arguments as to why the CAPE should actually rise over time – and a small time range will tend to stop this distortion. The Green shaded areas correspond to the limits of one standard deviation of the CAPE from the 40-yr average values.

Slack Investor S&P 500 CAPE data showing the **1982-2022 average** (arithmetic mean) **P/E value of 24.3** at the end of May 2022 -“Fair Value” is represented by the green shaded area. Despite recent price drops, the S&P 500 CAPE is still well above average (28%) but at least in the broad “Fairly Valued” range now- Data from Barclays

Slack Investor FTSE 100 CAPE data showing the **1982-2022 average** (arithmetic mean) **P/E value of 17.5** at the end of May 2022 -“Fair Value” is represented by the green shaded area. The FTSE 100 CAPE is close to its 40-yr mean and well into the “Fairly Valued “range – Data from Barclays

Slack Investor ASX 200 CAPE data showing the **1982-2022 average** (arithmetic mean) **P/E value of 20.4** at the end of May 2022 -“Fair Value “is represented by the green shaded area – Data from Barclays

Slack Investor gets very nervous when the CAPE charts are well above the green “Fair Value” range. and would love to be a buyer when any of these markets show CAPE values below their 40-year averages.

However, as my “time the market” skills are limited, and my Stable Income pile is still producing, I am prepared to strap in and “enjoy”(not really!) the ride.

June 2022 – End of Month Update

The financial year closes and looking at the 12-month charts for FY 2022 – An official “Bear Market” for the US (>20% fall from a recent high) and big drops in the UK and Australian markets. The “blood in the streets” trend in world index prices have moved the ASX 200 below my stop loss of 6917 – This triggers a sell response.

However, I will not sell against the overall trend. Given that the ASX 200 is bouncing up a little today (01 Jul 2022), this means that I will go to a weekly watch on the ASX 200 – I will now wait till the end of next week to see if the ASX 200 continues to drop – or recovers. I have developed this “soft sell” approach when I gauge that the market is not too overvalued (see above ASX 200 CAPE chart).

Slack Investor remains IN the FTSE 100, TENTATIVELY OUT for the ASX 200, but OUT for the US Index S&P 500 due to a sell in January 2022.

All markets down for the month. The FTSE 100 (-5.8%), the S&P 500 (-8.4%) and the ASX 200 (-8.9%).

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.

Spurious Correlations … and April 2022 – End of Month Update

Cheese Before Bed Will Not Give You Nightmares

Slack Investor is a lover … of cheese. He follows all cheese related literature and was shocked by the revelation that “Death by Bedsheet Entanglement” is highly correlated (0.95 Pearson R correlation) with cheese consumption. The thought that over 800 people died in the US in 2008 at the hand of their sleeping equipment is terrifying.

A quick explainer on the correlation coefficient, it is just a way to measure how strong the relationship is between two variables. The correlation coefficient ranges between +1.00 (perfect positive correlation) through zero (no correlation) to -1.00 (negative corrrelation)

The close association between cheese and bedsheet deaths – Click Image for more detail – Data sources: U.S. Office of Management and Budget and Centers for Disease Control & Prevention – From tylervigen.com

Slack Investor salutes Tyler Vigen here – a bloke who wrote a program that crawls through unrelated government data sets to find spurious correlations. The above chart is one of these random pairs of data that were thrown together by his program. Almost 50 000 of these graphs that show unlikely correlations have been found so far – and one more is produce every minute! Hats Off Tyler.

Correlation does not mean causation
First lecture in Statistics 101

In the cheese consumption case, it is hard to think that eating cheese actually causes bedsheet entanglement. The first step when trying to establish a link between two variables is correlation. Then, most importantly, experiments must be done to show that A actually causes B – Is there a reason that makes sense? Some people link cheese to nightmares, but there is no scientific evidence linking cheese to death by bedsheet … so, this high correlation is probably just due to chance and a limited data set (10-yr). There is likely to be a missing other variable that’s the true driver that causes the correlation. I would speculate that both variables might be linked to general population trends – but this would have to be tested.

Using Sector Correlations in Investing

Slack Investor has been banging on a bit about “Sectors” lately. and despite not feeling the need to match his portfolio with the sectors of the S&P 500 (Or ASX 200), sector analysis can be useful.

My Investments portfolio consists mostly of “growth stocks” in the Technology and Healthcare sectors. The table below shows a high correlation of these sectors with the total market – they will tend to move with the general market during an occasional downturn. The Nasdaq Composite is down about 23% from its November 2021 high – the Slack growth portfolio is down about 7 % so far this financial year – Not fun, but I do expect the occasional down year.

Sector correlations with the US stock Market – A Sector that would exactly move up and down with the US stocks would have a correlation of 1.00. Low scores ie Utilities do not move up and down the same way as stocks. – From Morningstar 2000-2018 data

However, I want my Stable Income pile, 30% of non-house wealth, to be much more conservative. It holds annuities, fixed interest products and some shares. The shares in the Stable pile need to have a low correlation with the general stock market – as, when the stock market does poorly, I want this pile to be OK.

For my Stable pile, I choose stock sectors that are not highly correlated with stock market fluctuations (circled in red below). I already have some REITS (Listed Real Estate – Correlation 0.59), and some Consumer Staples (Correlation 0.57) which Perhaps I should buy some more Utilities and REITS (real estate). When I get an opportunity, I would like to buy some Utilities (Correlation 0.40) for the Stable pile.

I am always on the lookout for spurious correlations and the 19-year data set, in the above table seems sufficient (would like longer!). Do the correlations make sense? For example, it seems reasonable that Utilities would have a low correlation with the general market. It is a sector that would be able to keep its earnings and maintain its stock price – even during a market downturn.

An asset that has an even lower correlation to the S&P 500 is Gold – and is often seen as a “hedge” to to the stock market. Over a 20-yr period (2000-2020), Gold has a correlation of -0.28 with Australian Equities and -0.12 with Global Equities

Gold has a low (and at times, negative) correlation to other assets
ETF Securities

Smarter people than Slack Investor provide compelling reasons for including Gold in your portfolio – to improve long term returns. But the pig-headed Slack Investor has not yet overcome his old fashioned view that Gold is a speculative investment that does not earn a dividend or interest.

April 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 but OUT for the US Index S&P 500 due to a sell – back in January 2022.

Despite some big daily fluctuations, the FTSE 100 (+0.4%) and The ASX 200 (-0.9%) ended relatively flat this month. All is not well in the USA where inflation fears and some mixed results from the Tech sector allowed the S&P 500 to fall -8.8%.

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