Superannuation | Slack Investor

Fat Pigs and Fat Cats

From fithfath.com – The image is from the action rhyme “… this little piggy had roast beef” – but its such a great picture .. it’s in!

“… the farm had grown richer without making the animals themselves any richer — except, of course, for the pigs and the dogs.”

George Orwell – Animal farm (1945)

There is a bit of an animal theme in this post as Slack Investor pays tribute to George Orwell and his book Animal Farm. The “pigs and the dogs” have all the power in Orwell’s allegorical tale – and, with Australian’s paying $31 billion annually in super fees, there are plenty in the superannuation fund industry that are getting richer like the “pigs and the dogs”.

In common with most of the school essays that I wrote … after an interesting start, things start to fall apart … and I can’t stretch this narrative too much further. In Animal Farm, two of the leading pigs inspired the other animals to revolt against the humans … and, I cant see any of the retail super fund executives (who are benefiting from the status quo) getting us to demand lower fees – So it is up to us … Come on other animals … Let’s break out of our “profound disengagement” with our retirement savings and … Let’s revolt against these fees!

A good start would be to avoid most of the large institution owned retail funds (big banks, Macquarie, AMP) which creamed $12 Billion in super fund fees during 2016. While they were doing this, they delivered returns of 2 per cent less (pa) when compared to Industry super funds over 10 years. This under-performance, if continued, could cost $200,000 in retirement savings over a working lifetime.

So stand tall on your hindquarters all you downtrodden animals and firstly check where your current employer-paid super payments are going.

With few exceptions, you have a legal right to choose where your employer pays your superannuation contributions. If you formally notify your employer of your preferred fund, they must direct their employer contributions into the superannuation account of your choosing.

From Goodsuper.com.au

A recent survey by Stockspot “Fat Cats Fund Report 2017” looked at 4,102 Australian funds, sorted them into categories from Conservative to Aggressive then filtered them for relatively poor performance after fees over 1, 3 and 5-years. Stockspot calls these poor performers “Fat Cat” Funds.

At the other end of the scale, there are the “Fit Cats” with relative outperformance – these are the ones that you want! Stockspot found that fees were really important when measuring performance – if you are in a fund charging more than 1.5% per year, it is at high risk of becoming a Fat Cat Fund – to check how your fund rates according to Stockspot, go to this link.

A comparison of Retail Super funds and Industry Super funds – and how they fit into the Stockspot FatCats and Fair Cats rating system – From Stockspot.

So, as banged on about in a previous post, Industry funds generally have lower fees but Stockspot recommends looking further into the relative performance of each industry fund (after fees) over a period of at least 5 years as there is considerable variation in performance.

To flog a dead horse ( You will have to read Animal Farm to really get this pun … Sorry Boxer, Vale!) … and with apologies to George Orwell again …

Not all industry super funds are equal … some are more equal than others

August 2017 – End of Month Update … and Fund Returns FY2017

Slack Investor remains IN for US, UK, and Australian index shares.

A steady month for all markets that I follow – Slack Investor stays on the couch and does nothing …

The Chant West media release referred to in the previous monthly update has plenty of other useful information.

Fund Performance Results (Up to June 30, 2017)- Source Chant West

The above table quotes the median performance figures from various types of funds that Chant West monitors, ranging from All Growth to Conservative. As mentioned in a previous post, the 1-Yr column shows it has been a bumper year for all types of funds – If you owned any growth fund during the last 7 years, you would be tremendously pleased with the 10% pa returns.

The GFC (Global Financial Crisis) of 2008 (and later years) continues to weigh down the ten year returns (4-5% for growth assets).

Over the last 25 years, Chant West found the returns of growth funds were a more reassuring 8.3%. It just drives home the devastating affect of a major downturn that an event like the GFC has on growth funds. The figures are, in the jargon of the industry,”net of investment fees and taxes” … but curiously before admin fees and advisor commissions … but this is another story!

Growth Funds – Rolling 5-Year Performance (Returns %pa) – Source Chant West

The above graph compares the growth category median (rolling 5-year) with the average return objective for growth funds – CPI (Consumer Price Index) plus 3.5%. This is a typical target for growth funds. In an environment where cash returns are mostly below 2% there is risk involved with investing in growth assets.

I never ever ever thought I would be quoting the far-right (recently) former Trump employee on this site.

“My old firm, Goldman Sachs – traditionally, the best banks are leveraged 8:1. When we had the financial crisis in 2008, the investment banks were leveraged 35:1.”
― Steve Bannon, Media Executive and former Investment Banker source

However, “Breitbart Steve”, after the fact, your quote rings true … the signs are always there … Excessive borrowings (leveraging) and a willingness for people to pay top dollar for overvalued assets are sure signs that trouble is coming.

Slack Investor is comfortable with risk and would always prefer growth funds – especially with a large time horizon – but I will never be able to avoid ordinary fluctuations (corrections) in the stock market. A disciplined approach to stop losses should keep me out of the huge falls that the GFC presented to owners of shares.

Although valuations are generally high, Slack Investor does not see a bubble in the Australian or UK Stock Markets for now – Unlike the US market, Australian and UK share valuations are not too far higher than long term averages – and there has never been a calamitous fall in stock values without a bubble first. Regardless, my stop losses will protect me from huge losses of capital.

I have updated all Index pages and charts to reflect the end of month data.

July 2017 – End of Month Update … and Long Term Returns!

Slack Investor remains IN for US, UK, and Australian index shares.

A steady month for the ASX and gains for the UK market (0.7%) and the US Market (2.3%) – It must be the “Mooch” Effect. I am sad to see him go … In a circus you need heaps of clowns!

Chant West are a superannuation consultancy and research firm that release a trove of data on how superannuation is rolling along in Australia. The have excelled themselves in a very timely media release. outlining that this is the 8th financial year in a row of median gains for Australian Super “Growth” funds. They define growth funds as funds that invest 60-80% of their investments in growth assets such as shares and property. Their results for the past 25 years for Australian Super Funds is presented below.

Median Australian Growth Super Financial Year Returns (%) – net of fees and taxes – from Chant West

Despite the worries of the world, this last financial year, the median of Australian growth funds achieved a 10.7% return and some of the low fee funds discussed in the last post, such as HostPlus and Sunsuper achieved FY17 returns of 13.2% and 12.4% respectively in a year where the safety of cash could only yield 1.8%.

The five-year period up till now have been boom times for the share market. There will be high fives and bonuses all round for the suits that control your funds. This has been a good investing year and you should rejoice at the returns shown in your super statements when they are sent to you soon – and reflect upon the pitiful returns that you would have got if you had your super invested in a bank account.

But, it is a good reminder that not all years represent gravy for growth funds and it is the nature of these assets that their will be some yearly fluctuations. Slack Investor’s feeble memory is strong on the returns of the years 2008 and 2009 where the Global Financial Crisis caused asset prices and market returns to crash. I can remember many who lamented that this compulsory super business was a costly rort – it was tough to watch your retirement savings shrink even though money was taken out of your wages each week.

Slack Investor has a soft spot for the bard

“Ay, to the proof, as mountains are for winds, that shakes not, though they blow perpetually.” ― William Shakespeare, The Taming of the Shrew

So “shake not” dear investors … think long term and think growth … and despite the occasional disappointment … you will be rewarded! Compound interest will be doing its work on your savings in all those years that are blue in the above image – It is only fair that you have got to give compound interest the occasional year off – for recuperation!

I have updated all Index pages and charts to reflect the end of month data. .

Spaceship … Let Me Out Here!

Hey you Millennial dudes and hipsters… Suh!

Space … sounds good … its so snatched! … Spaceship … even better. Come on … lets get on board. Superannuation is so boring … but Spaceship .. Its so now – isn’t Elon Musk working on one?

What Slack Investor is referring to is the reach out to the younger crowd of cool new investor products that will look after your superannuation in a really cool way. Spaceship, is just one of the new breed of disruptors (e.g, Zuper, MobiSuper, Grow Super) that is encouraging you to put your super investments into a high tech sounding enterprise that focuses on new technology companies. It seems that their marketing push has been successful with at least $100 million in funds under management for Spaceship.

Now, Slack Investor has a soft spot for disruptors that make use of new technology to help the investor work more efficiently through lower costs and new platforms. However, Spaceship and their ilk are not, so far, disruptors. They are just a repackaging of the same old greedy financial industry that are trying to separate the investor from their hard earned loot.

We had a look at the critical importance of fees in investment in an earlier articles here and here. Despite the marketing fluff, Slack Investor is getting off the couch and drilling down. A highly recommended process before you part with your money to anyone. Spaceship fees are 1.6% plus administration, MobiSuper fees 1.5% plus admin fees, Grow Super fees are 1.85%! Fees are critical to investment returns.

The same drilling down process can be done in the USA with Individual Retirement Accounts (IRA) or employer sponsored 401(k) plans. Google is your friend – Long term performance and Fees Fees Fees is what you are looking for. A good articles for the USA on fee impact can be found here, And for the UK here.

The Australian Securities and investment commission (ASIC) says

A 1 % difference in fees can lead to a 20 per cent difference in the value of a superannuation benefit over 30 years.

From Hostplus – Money Magazine Best of Best 2017

The above table shows some existing funds that have established long-term returns and with a fee structure less than 0.5% for $50000 invested.

So get out of the spaceship … and relish life on planet Earth with some low cost super funds … they are so “On Fleek” as far as your money is concerned.

Superannuation … Engage! – Part 2

You have been busy (and definitely not Slack) and gone through the paperwork that combines your super funds into one fund that you will keep for your working life. You have probably found an Industry Super Fund provider with established performance and low fees … Sorted!

Slack Investor is proud of you!

However, a little more work is required. The default investment option for most funds is called “balanced” – that sounds pretty cool – who wouldn’t want to be balanced! Generally Balanced options comprise 60-70% in growth assets and 40-30% in income assets.

The options that your fund may offer you are … in terms of increasing risk are

Cash – Invests 100% in bank deposits or other ‘capital guaranteed’ products.
Conservative – Around 30% in shares and property with the majority in fixed interest and cash.
Balanced – About 70% in shares or property, and the rest in fixed interest and cash.
Growth – At least 85% in shares or property.

If you are young … go for Growth, or High Growth … every time! Your super will be invested for 40-50 years and this is plenty of time to ride a few bumps that Growth assets such as shares and property can sometimes throw … Embrace risk and ride these bumps …. It is a good lesson to realise that the beautiful dance between risk and growth must be part of your investing life – Without risk, it is impossible for your investments to grow substantially.

Depending on your time frame, your tolerance to risk will vary. There are good reasons for someone approaching retirement to step back from a growth at all costs investment strategy. But, if you are just starting your working life, and want to grow your superannuation in a meaningful way … time is on your side … and risk is part of this process …

Australian Super have crunched the numbers and found that

YOUNG workers choosing “low risk” investments for their superannuation may be up to $170,000 worse off

The appealing sounding “low risk” options mostly deliver returns not much higher than inflation … And, we are not interested in just tracking inflation … we want growth!

If your superannuation amount is low and you want to give it a bit of a boost, and you earn less than $51,021 (2016/2017 year), the Australian government runs a co-contribution scheme that will reward you on a sliding scale – If you earn less than $36,021, the tax office will automatically kick in a maximum $500 for a $1000 after tax contribution to your super fund – This reward gradually tapers to zero as your income approaches $51,021. This is a pretty good return for your investment!

Grandparents and parents please note – if your wonderful offspring have a part-time job and a compulsory super fund – and you have a windfall that you would like to pass onto the next generations that cannot be frittered away on teenage pleasures – I am reminded of the fantastic George Best quote here.

I spent a lot of money on booze, birds and fast cars. The rest I just squandered.

Despite the wisdom of George Best, a gift of $1000 that would go directly to your loved one’s super fund would attract this govt co-contribution and be a great lesson in the benefits of compounding interest.

Superannuation … Engage! – Part 1

Most Australians, particularly young Australians, rarely show interest in their superannuation(retirement)fund. I can understand this when you are just starting your working life and your experience with super is just to see a slab of your pay earmarked for some obscure fund that you wont be able to access until you are almost fossilized at the age of 60.

However, it is time to engage … our super fees are too high in Australia … and a lot of the problem is the design of the system … and apathy. The Australian compulsory superannuation system is much envied – However, it could be improved – your default fund is decided by your employer and this, annoyingly, could change with each new job – it is time to take control!

According to the Super Sting report put out by The Grattan Institute, Australian’s pay $21 billion a year in super fees. Australians pay fees at almost 3 times the rate of other OECD countries. The report states

… a 30-year old Australian today will have his or her super balance reduced by almost $250,000 in fees (in today’s dollars) at retirement!

This is too much! Set aside an evening where you hunt down the latest super statement from your fund and do a bit of google research. I would throw in a glass of wine … but that’s just me!

Sure … there is a delay in getting your super … but it is your money, why give to the bloated financial industry!

Many super funds ask you to pay fees of up to two per cent per year to have your compulsory superannuation ‘managed’ However, with a tiny bit of effort, it is possible to restrict your super fees to around 1% (or less!) per year. This means a person with a fund balance of $50,000 could reduce their fees from around $1,000 per year to less than $500 – just by filling out a few forms .. the whole process is outlined on the ASIC Moneysmart site – I will borrow and paraphrase these steps …

Choose a fund – The Slack way is to let someone else do the legwork for you and go to the independent site SuperRatings – they list a top 10 funds (I have shown the top 5 – over a 5-year period below). Note that on this trawl, they are all Industry funds. Retail funds usually have lower returns as they have higher fees.

TOP 10 RETURNS AS AT 28/02/2017
Rank	Fund Investment Option	Return	Return Period
1	HOSTPLUS – Balanced	10.80%	5 year
2	Cbus – Growth (Cbus MySuper)	10.66%	5 year
3	UniSuper Accum (1) – Balanced	10.56%	5 year
4	AustralianSuper – Balanced	10.54%	5 year
5	CareSuper – Balanced	10.54%	5 year

Don’t get carried away with small differences in returns but, as well as previous returns, take a look at the other important factor, yearly fees – RateCity has sponsorship deal with some super providers, but their listing on performance comparison here shows typical yearly fees on $50k balances – If you can get fees $500 or below (<1%), you are doing OK.

Check your insurance cover – Income insurance is usually a good idea, and this is a separate component to your fees- life often can sometimes throw up something unexpected and a basic policy might help you out in times of trouble. For older folk … near retirement with equity in your house … this insurance is not so important.
Open a new account – Contact your proposed new fund and set up an account – no upfront transfer of money is required … this will come later. Ask them for all details to tell your employer – Choose well … and this will be your super fund for your working life.
When your new fund is established, tell your employer – Make sure they know where to pay your super and make sure you have your new account number. Your employer will have to enter these detail in the payroll software- Keep this fund for ALL of your jobs when you fill out your employee information forms!
Rollover super to your chosen fund – This is simple if you have only only one existing fund – your new fund will have a form that you can use to request a rollover from your existing fund. OR, if it is complicated and you have several funds going, you can combine these online through myGov,

There is more to say on this topic … stay tuned for part 2. For more information take a look at the ATO’s keeping track of your super page.