After discussing how hard it is for those trying to buy their first home. Slack Investor is compelled to provide some hope in the desire to own your home before you retire. The numbers are in … and, not owning a house in retirement or, losing your job before you retire, puts you at real risk of not reaching a comfortable financial position.
Whereas very few retired home owners are in poverty, most retired renters are …
There are very few existing incentives on the dusty twisted road to home ownership. They include Stamp Duty exemptions/concessions that vary from state to state. In Victoria, they are available for homes less than $750K. There is also the First Home Buyers Grant (FHBG), which, again, is dependent on which state you live. In Victoria, that comes in at a measly (but I’ll take it!) $10K.
All of these things are worth considering and applying for when you finally purchase a home, but the First Home Super Saver Scheme (FHSSS) is a lesser known arrangement that seems to make sense – but it requires a bit of “setting up”.
In order to make the most of the FHSSS, you’ll need to start planning well ahead of the time to buying a house/apartment (3 – 4 years?) – But planning ahead is the very trait that Slack Investor loves!
First Home Super Saver Scheme (FHSSS)
I did refer to the First Home Super Saver Scheme (FHSSS) way back in 2017 when it was just a twinkle in ScoMo’s eye – it started as an election promise to get the “young folk” on board as the government felt a need to at least be seen to be doing something to help first homeowners.
These voluntary contributions can be withdrawn from your super when you finally ready to purchase a home – by filling out an ATO form for a ‘determination’. The determination will tell you exactly how much you can withdraw – it will be a little more than you have put in (your contributions – up to $50K – plus deemed earnings)- and waiting a month.
Getting the money out usually takes 15–25 business days … once you withdraw money to buy a house, you have one year to use it
These extra contributions are over and above the compulsory super that your employer makes. The scheme works by making an arrangement with your paymaster to salary sacrifice into your super – up to $15K per tax year. Contributions can also be made by arranging with your super provider to make a personal super contribution.
The tax savings come about as, you only pay 15% tax on these super contributions – rather than your marginal rate of say, 32.5%. Plug in your own details into this calculator to determine your possible tax savings.
I would recommend all prospective home owners to take a look at this scheme. Assessment for eligibility is made on an individual basis … so couples and friends can combine their amounts – but start now – it will take a few years to get a useful house deposit.
Colonial First State outline a case study of a couple that have each started voluntary extra super contributions of $15K – After 15% tax this comes down to $12 750 p.a of contributions into their funds. After 4 years, they each have amassed $55K (4 x $12 750 plus deemed interest). A combined house deposit of $110K was possible using the FHSSS – and, using a favourite Slack Investor way of saving – deductions from your salary before you even see it! All of this with tax advantages.
Homework (get it!): – Potential homeowners – read about it – and get on the FHSSS!
Even Superman has his limits – Is it Kryptonite OR Brussell Sprouts?
Slack Investor writes a lot about Superannuation because it is a fantastic component to have in your armoury to establish financial independence – in a tax-effective way.
The ultimate aim for Slack Investor is to fund your own retirement, but in reality, according to the Association of Superannuation Funds of Australia (ASFA) estimates, a minority (43% ) of Australians of retirement age would be self-funded by 2023 – this percentage should increase as the compulsory superannuation system matures.
Before we get to this mix, by the time you retire, you do want to have a place to live and be free of landlords. This may sound impossible to some at the moment – but it is a vital part of financial independence. It can be a “tiny home”, an apartment, a place in a regional area …. as long as it is yours!
Tiny Homes – This 20 sq m little bewdy will set you back $32 000 – however, you still have to find land for it – and connect to services.
It is so important to aim to own your own home by the time that you retire – even if it is a 1-br apartment. Admittedly, this is so much harder than it used to be! Looking at the figures below, it is vital to get as large a home deposit as you can to reduce your borrow amount – this should be one of your early financial goals. However, without help, a multi-bedroom home near a capital city now seems near impossible.
If you dont have a deposit, October 2023 data showed that Australians need an income of more than $300,000 a year to buy a median priced home. Household incomes required were considerably less, but still “eye watering”, for outer suburbs and regional cities. e.g. Geelong $243,333, Brisbane $223,333. Apartments are usually less expensive – and require less income to service the home loan.
At its most basic level, superannuation is forced retirement savings for all working Australians. A compulsory contribution of 11.5% of your salary (from 1 July 2024) that will compound till your preservation age (between 55 and 60).
According to Treasury projections, about 60% of retirees will have less than $250 000 in super in 2024. This amount of super is not enough to fund a comfortable retirement. $250 000 in pension mode at the official Age 67 drawdown rate of 5% generates only $12 500 income per year. Clearly, many Australians will need to rely on a mix of their super and the aged pension for retirement income. The Aged Pension is available to Australians over 67 – but, it is means tested.
The bare minimum to aim for is the “sweet spot” in the aged pension asset test where your assets are a bit more than the maximum allowed for the full pension. Under current rules (2024), home owning couples can have $451 500 in assets (singles $301 750) and still qualify for the full government aged pension (at age 67).
In 2020, the Alliance for a Fairer Retirement System pointed to a super sweet spot of around $400,000, which can see a pensioner (home-owning) couple “earning $1,000 a month more than a couple with $800,000 in savings.”
The first chart shows 20 different amounts of superannuation that you might have saved up by the time you are ready to retire – ranging from $150 000 to $1 100 000 above chart – from saveoursuper.org.au.
This next chart is far more interesting, it shows your total income from different amounts of superannuation (shown in the above table) mixed with the aged pension – for a home owning couple. For simplicity, these tables assume your only non-home assets are in super and the aged pension rates were those applicable in 2021 ($34 777 per couple). The essence of the table is still valid.
Total amount of retirement income – for a home owning couple – Combination of Part-Aged Pension (orange) and 5% of Superannuation Balance (Blue) for each of the 20 amounts of Superannuation Balance shown in the first chart (Using data for 2020/21)- saveoursuper.org.au
Bizarrely, there is a point on the total retirement-income (couple) table corresponding to around $400 000 in assets/super where an increased assets/super balance does not lead to an increased total income due to the asset test pension taper rate. Above that point, for those on the part-pension/super mix, the more super you have, your total income actually goes down. This strange anomaly exists for assets/super between $400 000 and $800 000 (2021/2020 data).
Clearly, the current assets test to qualify for the aged pension is unfair and provides a disincentive to save -and should be changed. But, until then, a major retirement goal is to use your super to get your total assets to near the sweet spot before you reach age 67.
(It)is not fair that people who forgo consumption and save more to increase their living standards in retirement and reduce their reliance on an Age Pension should instead get less retirement income. This is the perverse outcome for a large range of savings under the 2017 assets test.
How the Assets test works (in real life) for the aged pension (2024 Data)
According to Services Australia, for the aged pension, assets are property or items you or your partner own in full or part – this does not include your home! It does include Financial Investments (Bank accounts, shares, managed funds, annuities, etc), Personal assets (Home contents and vehicles), Superannuation and Real Estate.
I had a recent example of filling in an assets form for a close relative. Her bank statements and investments were easy to quantify. We were advised that personal assets should be valued according to what we could get if we were “keen sellers”. It was suggested to us that, other than vehicles, most peoples personal effects would amount to between $5000 and $10 000. This proved to be near the mark as most furniture and home items end up having to be donated when finalizing a deceased estate.
For the table below, the aged pension and asset limits are current values* and correct at February 2024. Using 2024 data, the “sweet spot” for assets is now near $451 500 for couples ($301 750 for singles). If you had $250 000 in super, and your “other assets” added up $60 000 (Car $13 000, Bank Ac’ts/Shares/Funds $35 000, Home Contents $12 000). Your Total assets would be $310 000.
For a couple with similar “other assets” and a combined super of $400 000, your total assets would be $460 000.
Situation
Asset Limit
Other Assets*
Super
Drawdown from Super@ 5%
Age Pension
Total Income
Single Home-owner
$301 750
$60 000
$250 000
$12 500
$28 514
$41 014
Couple Home-owner (Combined)
$451 500
$60 000
$400 000
$20 000
$42 988
$62 988
Table based on a single home-owner with $310 000 total assets ($60K + $250K) and a couple home-owners with $460 000 total assets ($60K + $400K) – using Feb 2024 values for the Aged Pension and Asset Limits.
Using this mix of super and the pension, when reaching the pension qualifying age , a modest to comfortable retirement is possible under current rules when you own your own home. Also, under the Work Bonus Rules, singles can earn up to $5304 (Couples $9360) in a part-time job without affecting their aged pension.
Comfortable lifestyle (p. a.)
Modest lifestyle (p. a.)
Couple $71,723
Couple $46,620
Single $50981
Single $32,417
ASFA calculated annual retirement requirements for those aged 65-84 (September quarter 2023) for both “comfortable” and “modest” lifestyles
February 2024 – End of Month Update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
Little movement this month for the ASX200 (+0.2%) – but, it is testing new all-time highs. Nothing happening with the FTSE 100 (0.0%) at the moment.
The S&P 500 (+5.2) and the NASDAQ 100 are hitting new record highs and Slack Investor is pleased to go with the momentum but remains nervous for these markets.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
A few times a year, Slack Investor likes to take a snapshot of the markets using the Cyclically Adjusted Price to Earnings ratios (CAPE) which use ten-year average inflation-adjusted earnings. I first started using CAPE as a “value” tool in September 2021 and, my most recent look was in mid-November 2023. I have decided to do this CAPE market value analysis every 3 months – as I like to keep a feel of where we are – as the market cycles. The next update will be in mid-May 2024.
By plotting this CAPE over a period of time, we can look at how the whole sharemarket is currently valued in terms of historical data – this way we can track the whole share market as it oscillates between overvalued and undervalued.
Using monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the CAPE values. A “fair value” zone is created in green where the CAPE is within one standard deviation of the mean (average).
ASX 200 Value
Historic CAPE ratios for the ASX 200 – From 1982 to end of January 2024 – Click the chart for better resolution.
FTSE 100 Value
Historic CAPE ratios for the FTSE 100 – From 1982 to end of January 2024– Click the chart for better resolution.
S&P 500 Value
Historic CAPE ratios for the S&P 500 – From 1982 to end of January 2024 – Click the chart for better resolution.
At the end of January 2023, the FTSE 100 (11% below the 40-yr average) is the only followed market “ON SALE”. I love a price reduction!
The ASX 100 (4% above the 40-yr average) is in the “Fair Value” zone. However, the S&P 500 still looks well overvalued at 32% above the 40-yr average – and has just moved above the “Fair Value” zone.
Slack Investor usually just assesses stock market returns at the end of the financial year. However, calendar year 2023 was some ride.
The 2023 ASX 200 Chart
For the 2023 calendar year, the ASX 200 Index started at 7020, and ended up at 7590 – a 12-mth increase of about 8% – but, on the way, it fell to a year low of 6751 – a temporary fall of 3.8%.
Of course, If you did not look at the charts daily, these fluctuations would mean nothing. If you ony looked at the Australian Index at yearly intervals, 2023 would probably bring some joy. As well as the overall 8% gain for the year, when you include dividends, the ASX 200 Index total return for calendar year 2023 was 12.2%. The ASX “All Ordinaries” Index (Tracking Australia’s largest 500 listed companies) had a total return of 13.0%.
Slack Investor will again emphasize the joy of investing and mostly doing nothing – and trying to focus on longer term returns. One of the best summary charts I have seen for a while that shows calendar year returns has just been updated and published by Ashley Owen. Ashley uses the “All Ordinaries” Index rather than the ASX 200 Index- as there is more historical data available for comparison.
Total ASX “All Ordinaries” calendar year returns – with the the last 5 years highlighted – From Ashley Owen – Owen Analytics – (Click to Enlarge)
The first thing that jumps out in this chart is the amount of “Green” positive years vs the “Red” negative years. In 78% of calendar years, ASX Index returns are positive. The overall average total return since 1900 for the Australian “All Ordinaries” Index is 11.7%.
Inflation has been the topic of the day lately and Owen has kindly provided his calendar year chart in terms of Real Returns for the All Ordinaries Index – The total return minus the inflation rate (Consumer Price Index (CPI)). A certain amount of cash is worth holding to for liquidity – so that you can avoid selling stocks in a market downturn. Although cash can iron out some of the stock market fluctuations, being invested in cash is not a protection from inflation.
Total ASX “All Ordinaries” calendar year “Real” (minus inflation) returns – with the the last 5 years highlighted – From Ashley Owen – Owen Analytics – (Click to Enlarge)
Adjusted for cpi increases, the overall average “Real” total return since 1900 for the Australian “All Ordinaries” Index is 7.9%. Slack Investor is willing to put up with the volatility of share markets for an average “after inflation” return like this.
For financial independence and as a hedge against inflation, it is important to own growth assets – such as the Australian Share market. Sure, there will be the occasional negative annual returns ahead … but let’s not worry about this while the Australian stock market is rising. Long-term overall results are the important thing.
January 2024 – End of Month Update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
After a big Christmas Rally, things have settled down a bit with modest gains for the ASX 200 (+1.2%) and the S&P 500(+1.6%). The FTSE 100 had a small fall ( -1.3%)
It was time to adjust the stop loss for the S&P 500 as the current value is over 15% greater than the stop loss. Slack Investor has long believed the US market is overvalued and, while enjoying the journey, is happy to have his stop loss a little tighter. It is difficult to do the adjustment on the monthly chart, so I had a look at the weekly chart for the S&P 500 below. I am looking for a dip in the chart that represents a “Higher low”. The new stop loss now stands at 4682 – only 3% below the current value.
Slack Investor at age 18 near Albany W.A. – Before and After the GIMP treatment
Slack Investor likes to have a rounded life that is full of things that are not finance related. Occasionally, I will write a blog about something that I think is useful that I think that other people can also benefit from.
1975
49 years ago … Cripes! I had just finished High School and a mate and I went of on a Summer car surfing adventure from Melbourne to Western Australia before Uni started. As it turns out, 1975 would have been a good year to start investing … but life is much more rich and exciting than just investing.
Dusting of my old Photo Albums revealed that my memories had deteriorated to the standard below. It must have been the state of the art of photo emulsions in the 70’s.
The first thing to do is to scan the album page with your colour scanner/printer. I wanted to capture as much as I could of the original photos and played around with resolutions on my A4 scanner – as I eventually wanted to throw out the original albums. The scanning resolution that worked best for me was at about 400 dpi. In my case, increasing the resolution did not help the clarity of my original images. The above scan worked out to be about 4 Mb. I labelled the scan “Year Taken”_”Album Name”_”Page #”
I then cropped each individual image by pasting the scanned image into Microsoft Paint – but any photo edit software will do this. I labelled the image “Year Taken”_”Album Name”_”Page #”_”Photo #”
Get the GIMP
Not to be confused with the gimp from Pulp Fiction . Warning: this link is not not for the feint-hearted – Quentin Tarantino can go in a few sick directions!
However, this GIMP is software that is a fantastic cross-platform image editor available for Linux, macOS and Windows. It is free software that can be downloaded here … I used version 2.10.36 … and it can perform miracles!
Open up GIMP and find your individual image, cropped from your photo album, to be transformed . Select File/Open – Then open up the Color/Levels Dialogue box
The magic happens here when you press the “All Channels/Auto Input Levels” Button inside the pop-up Levels Dialogue Box (Below).
A miracle has been performed with one click of a button – and you can save the new image in .jpg format by clicking File/Export as …
There are simple ways to clean up the image of any blemishes … but we have done enough for today. Will have another go at another non-finance instructional post later this year.
My last post on “Salary Sacrifice” got me thinking on the other things that I did to help myself on the journey towards financial independence. I have before stressed the importance of your savings rate as the primary tool in the box – and, more than anything, this is the number that will affect when you become financially independent.
This figure can be calculated a few ways, but for simplicity, let’s define it as your retirement savings as a percentage of your take-home pay (disposable income after taxes and deductions) – this can be calculated using fortnightly, monthly, or yearly data.You can work out your own savings rate or, if you are in a stable relationship with a combined goal, include your partner’s savings and take-home pay.
SAVINGS RATE (%) = 100 x (Total amount of Savings put aside for Retirement/Take-home Pay)
This savings rate is the percentage of your after tax income that you must be putting towards retirement – and it defines the number of years that you have to work until you can sustainably generate your expenses from your investments. There are some assumptions for the following chart:
This magical curve is presented below to bring a bit of clarity to your goal. The object is to get to the stage when your annual return on investments (Passive income) cover 100% of your expenses. This represents the beautiful state of financial independence.
From The Escape Artist – using the conservative assumption of a 5% return on your retirement portfolio after inflation.
In Australia, with compulsory superannuation, 10% of your gross salary is deducted from your wages. Taxation rates will vary, but lets just say that 10% of your gross salary is the equivalent of about 15% of your net salary (disposable income). You add your superannuation to any other retirement saving that you are doing to get your total amount of savings put aside for retirement.
Starting from scratch, from the above graph, if you worked continuously, and only relied on compulsory superannuation you enter the full-time work force and you are 42.8 years away from a retirement – where your living expenses are covered by the passive income from your retirement savings. In other words, if working continuously, a 22-year old starting full-time work will have enough passive income to cover expenses when reaching the age of 64.8 – relying solely on compulsory super.
In Australia, there is also the aged pension to kick things along after age 67. Obviously, if you want to retire sooner and have a bit extra for holidays, and to allow a bit of a safety margin, and be financially independent – You will have to do some extra savings towards retirement yourself.
How are people going with their savings rate?
For Australians, the compulsory superannuation system provides a sound base for retirement savings (with a working life of 42.8 years). This doesn’t factor in the government funded aged pension – subject to a means test. Currently the pension (September 2023) is $28,514 per year for a single person – But who knows if this will still be available at present levels in the future. It is best to plan for your future without it – and then accept it as a bonus if you qualify.
Although this sounds OK, any disruption to your working life (ill health, family, education, retrenchment, etc) will be a real setback to your retirement plans – Any work breaks will require additional savings for your retirement. In the US, the “average” savings rate was between 5-10% for many years. Despite some impressive savings rates during COVID-19, in July 2023, the personal saving rate in the United States amounted to 4.1 percent.
You would have to say … this does not bode well for a satisfying retirement for the “average” US Citizen.
What was the Slack Investor Savings Rate?
Rusted on followers of this blog will recall that I had a bit of a delayed start to thinking about retirement. I had just arrived back in Australia after a 6-year working holiday overseas. I was aged 30, broke, and the only thing I knew was that I didn’t want to continue working in the field that I was trained in – high school teaching.
Clearly Slack Investor had a bit of work to do. Once I was in regular employment again, I set about getting the financial building blocks in order. Emergency fund, house deposit … and then savings for my retirement. I did this mostly using salary sacrificing into superannuation and building up my own private share portfolio.
There is nothing Slack Investor likes more than burrowing into my financial history using the excellent and free “Sunset” international release of Microsoft Money. I use the Australian Version. I have been using this software to track my finances since 1990 (33 years!)
Including superannuation contributions, my savings rate for retirement fluctuated between 20% and 45%. From the top graph, this represents a shifting rate that was equivalent to an overall retirement goal that required between 36.7 years and 19 years of working. Since “ground zero” at aged 30 and some extra education, I ended up working mostly full time for 28 years. Luckily, I had found a job as meteorologist that I really enjoyed.
This is not the “hard core” road to financial independence (i.e retire at 35, etc) – but Slack Investor thinks a reasonable compromise with the competing priorities of raising a family and buying a house.
Savings Rate is so important. Determine what your own savings rate needs to be to achieve your retirement goals – and automate your savings deductions as much as possible – and get cracking!.
December 2023 – End of Month Update
Happy Days. The year closes and, Slack Investor was definitely not naughty … a big December “Santa Rally” this month. All followed markets rose. The ASX 200 up a mighty 7.1%, the FTSE 100 up 4.0%, and the S&P 500 up 4.4%,
Slack Investor remains IN for the FTSE 100, the ASX 200, and the US Index S&P 500.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.
Slack Investor likes a bit of old art – and a picture that tells a story really floats my boat. But firstly, a bit of recognition to the fabulous Artvee site that gathers public domain files of artworks from around the world from galleries and museums.
This Jaques Sablet oil painting depicts a father returning home with a bandaged arm – where he reveals some loaves of bread to his hungry family. He has previously allowed a trainee surgeon to extract his blood in exchange for money.
Not suggesting a blood sacrifice is required these days for a loaf of bread – but a form of sacrifice that could help you on your journey to financial independence is Salary Sacrifice.
Salary Sacrifice
The key to tax-effective salary sacrifice is for the employee to take some of their remuneration in the form of concessionally taxed benefits instead of taking it all as fully assessable salary.
Australia has a progressive tax system that steps up at critical income values. The advantages of salary sacrifice are that you are buying a benefit in pre-tax dollars in an arrangement with your employer – who takes out the money before you see it. For example, if you sacrifice some of your pre-tax salary for superannuation contributions – instead of being taxed at your marginal rate, you are being taxed at the superannuation contributions rate of 15%. There is a tax saving.
Australian Residents Personal Tax Rates 2023-2024
Taxable income
Tax on this income
0 – $18,200
Nil
$18,201 – $45,000
19c for each $1 over $18,200
$45,001 – $120,000
$5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000
$29,467 plus 37c for each $1 over $120,000
$180,001 and over
$51,667 plus 45c for each $1 over $180,000
The above rates are from the Australian Tax Office (ATO) and do not include the Medicare levy of 2%. There are defined things that you can “sacrifice” and pay for with pre-tax dollars. They include car expenses (loan, running costs and parking) and superannuation.
Salary Sacrifice For Superannuation
Slack Investor has always been a good saver and would save up and pay cash for a second-hand car rather than getting a car loan. The benefits of sacrificing salary for a car were small without the a car loan element. I did however see the advantages in sacrificing part of my salary for superannuation.
United Global Capital (UGC) provide the case study for worker William aged 45 who plans to retire in 20 years. He was given a pay rise of $5,000, bringing his total salary to $90,000 pa. Rather than pocket the gain, he uses the pay rise to boost his retirement savings and salary sacrifices the extra $5,000 salary into super each year
By using this strategy, he’ll sadly have less take home pay ($3275), but he will save on tax and have an extra $975 in the first year to invest into super, when compared to receiving the $5,000 as after-tax salary (see Table 1).
The real benefits are in the disciplined automatic saving of $5000 per year and the magic of compounding over 20 years. If he continued to salary sacrifice this amount into super, this could lead to William having an additional $228,500 in his super after 20 years (see Table 2).
There are drawbacks to salary sacrifice … the main one being that even though there is an overall benefit to your wealth position – it is not realised till you retire and start using your superannuation – this may be many years away. Your overall take-home pay will immediately reduce – which is a tough ask in these higher prices times.
Usually not much of a country and Western Fan, but Slack Investor is quite taken with this video of Slim Dusty in his rendition of Looking Forward Looking Back – where two Australian Music Legends (Don Walker and Slim Dusty) combine to make this beautiful Australian song. Slim must have been about 73 when this song was recorded in the year 2000.
Making sense of what I’ve seen All the love we’ve had between You and I, along the track Looking forward, looking back
This song is bitter-sweet to me as it was played at a good friend’s funeral … and I always get a little sad .. but then, I think of the good times I shared with my friend. My friend was also a keen investor and, I’m sure he wouldn’t mind me using this song to launch this post. It is a song of reflection … with a reminder to look forward as well.
Slack Five-Year Individual Share Performance
Though Slack Investor reports on his results on a yearly basis, the annual Nuggets and Stinkers post is a constant reminder of how, in successive years, a company can be “a nugget” … or “a stinker”. The market will often go in trends of overvaluation followed by a period of undervaluation – and the true measure of how the stock has performed is lost in these constant tidal changes. For my purposes (Slack!), a 5-yr measure of performance is about right – as this allows for the true performance of a quality stock to shine through.
I trawled through the Slack Portfolio to find stocks that I had owned for 5 years. I was suprised to find that, of my current 22 individual stocks or ETF’s that I own, I had held only 5 of these for 5 years. This is not what I expected from a Slack Investor and I had to drill down into the portfolio to realize that I had given my portfolio a big shake-up about 4-5 years ago. I had retired, injected a large portion of my work super into my SMSF, and also sold a few stocks to make way for a house purchase.
The 5 stocks that I had 5-yr data on were Altium, Macquarie Group. REA Group, CSL and Codan. The 5-yr Internal Rate of Return (IRR) figures give an “average” annual return for the 5-yr period and include dividends as well as any stock price growth. The results below, for the five years up to 30/06/23, are from my financial software – the free “Sunset” international version of Microsoft Money Australian Version. There are IRR calculators and Compound Annual Growth Rate (CAGR) calculators also available online. I have also included the CAGR Total Return (TR) till 30/06/23 for each of the Slack followed markets (in bold) for reference.
Stock
Symbol
5-yr IRR
Altium Ltd
ALU
14.8
Macquarie Group Ltd
MQG
12.7
S&P500 (TR)
12.2
REA Group Ltd
REA
11.3
CSL Ltd
CSL
8.4
ASX200 (TR)
6.3
FTSE100 (TR)
3.8
Codan Ltd
CDA
3.3
Digesting the above table, Slack Investor is generally pleased with the annual IRR over 5 years of the majority of held stocks. The exception is Codan (CDA) which has had a roller coaster ride in the price charts (see below) – and underperformed the ASX 200 index over 5 years. This stock needs further evaluation to see if I should continue to hold it in the Slack Portfolio.
There are strange days Full of change on the way But we’ll be fine, unlike some I’ll be leaning forward, to see what’s coming
I go to Market Screener Financials page for Codan to quickly see that the income for CDA is projected to increase for the next few years and the company is in a solid financial position. The projected Return on Equity (ROE) remains above 15% and, despite the dramatic price fall during 2021/2022 over earnings downgrades, the companies price trend so far in 2023, has been positive. This holding is currently on “watch” – but I remain a holder of CDA for now.
5-yr Price Chart of Codan (CDA) – from Investing.com
November 2023 – End of Month Update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
Due to a strong rebound this month Slack investor has cancelled his SELL Alert for the ASX200 that started at October 31 2023 due to a stop loss breach – and he now remains IN .
All Slack Investor overseas followed markets had a bumper month. The S&P 500 led the way with a massive rise of +8.9 %. More modest rises for the FTSE 100 +1.6% and the Australian stock market – the ASX 200 +4.5%.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
A few times a year, Slack Investor likes to take a snapshot of the markets using the Cyclically Adjusted Price to Earnings ratios (CAPE) which use ten-year average inflation-adjusted earnings. I first started using CAPE as a “value” tool in September 2021, and my most recent look was in May 2023.
By plotting this CAPE over a period of time, we can look at how the whole sharemarket is currently valued in terms of historical data – this way we can track the whole share market as it oscillates between overvalued and undervalued.
Using monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the CAPE values. A “fair value” zone is created in green where the CAPE is within one standard deviation of the mean (average).
ASX 200 Value
Historic CAPE ratios for the ASX 200 – From 1982 to end of October 2023– Click the chart for better resolution.
FTSE 100 Value
Historic CAPE ratios for the FTSE 100 – From 1982 to end of October 2023– Click the chart for better resolution.
S&P 500 Value
Historic CAPE ratios for the S&P 500 – From 1982 to end of October 2023– Click the chart for better resolution.
At the end of October 2023, both the ASX 100 (8% below the 40-yr average) and the FTSE 100 (15% below the 40-yr average) are “ON SALE”. If I have a choice, I will always look to buy in the sale period.
The S&P 500 still looks a little overvalued at 16% above the 40-yr average – but at least it has slipped back into the “Fair Value” zone.
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 theneed 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.
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 tradingless.
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.
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.
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).
