Barefoot Investor
on Hostplus
(what Scott Pape REALLY thinks)
In 2015, I sat down at my desk on the farm and decided I’d write a book.
I wrote the book like I was sitting at the pub with my best mate, explaining how I manage my money.
“Here’s the little orange card I use.”
“Here’s why I chose this low-cost super fund.”
“Here’s the pillow I use …”
That’s what you’d do if you were having a chat over a beer with your mate, right?
So that’s what I did.
A few months later I finished the book, and my editor boldly said: I predict this will sell at least 20,000 copies!’.
And then all hell broke loose.
We sold 80,000 copies the day it was first released.
Then 500,000 copies.
Then 1,000,000 copies.
Then 1,500,000 copies.
And before I knew it, there were people all over the internet googling my name, and all sorts of people (bankers / financial planners / marketers) were writing clickbait articles:
“The Barefoot Investor is WRONG”
“The Five Things the Barefoot Investor ISN’T TELLING YOU”.
And so on, and so forth.
I don’t read these articles, because generally they’re written by people who have a hidden agenda … they’re trying to sell you something.
From the get-go of my career, I’ve advocated that people should invest in low-cost index funds for their super. (An index fund simply tracks the market by automatically investing in, say, the top 300 companies on the market.)
And since I wrote in my book about the super that I personally invest in — Australia’s lowest-cost index super fund, the Hostplus Indexed Balanced Fund — I’ve had plenty of questions about my thoughts on the fund.
All I’ll say is this: the people you are reading online may be financial planners, or insurance brokers, or other people with vested interests. Yet I’ve got nothing to sell you.
So to set the record straight, here are my answers to the most common questions I get …
Do you recommend the Hostplus Indexed Balanced Fund?
No.
Personally, I have chosen to invest my own super with the Hostplus Index Balanced Fund. However, that’s not to say it’s right for everyone, and I have never said this.
Though, just a reminder: I first wrote about this years ago and highlighted the low fees. Today there are cheaper index super funds on offer.
How do I know?
Because my readers constantly email me about them! So before you do anything, go to the ATO websitepare super funds first.
Should I switch my super fund to Hostplus?
That’s a personal decision. In my book, I tell people to Google the PDS (product disclosure statement) for their own super fund and check if the fees are higher than 0.85% — and if they are, to consider switching to a lower-cost fund (whichever fund that may be).
However, I also say quite clearly, and I quote: “Before you do anything, it’s important to talk to an independent, fee-for-service financial advisor. There are tax and insurance issues you need to be on top of before you make any switch.”
Bottom line: you need to make a decision that’s right for your circumstances, and you should consult a financial advisor to do it.
And again, today there are cheaper index super funds on offer. So before you do anything, go to the Your Super comparison tool and compare super funds first.
Is Barefoot Investor affiliated with Hostplus?
No. Let me be clear, I don’t get a cent in kickbacks or hidden benefits for mentioning Hostplus, or any other financial institution.
My advisor/brother-in-law/random person on Reddit says that the Hostplus Indexed Balanced Fund has underperformed other actively managed funds over the last few years, so why would you invest in it?
Here’s the really interesting thing: 10 years ago the world’s greatest investor, Warren Buffett, put his money where his mouth was.
He famously made a ‘million-dollar bet’ that his basic ultra-low-cost index fund (like the ones I advocate) would outperform the most elite hand-picked hedge funds over the next decade. These hedge funds were not only run by the sharpest investors on Wall Street, but they were able to invest in whatever they wanted — sophisticated private equity deals, complicated derivatives, gold, stocks, property, infrastructure, Bitcoin — and they could invest anywhere in the world they thought was hot to trot.
Guess what happened?
In the first year of the bet, Buffett’s index fund was down significantly against the hedge funds, and it looked like he’d made a terrible mistake.
The index fund dropped a massive 37% in the first year, while the hedge funds were down only 23%.
So what did Buffett do to fix it?
Nothing.
Guess what happened after 10 years?
The hedge funds on average were up 36% over the decade. Buffett’s simple low-cost index fund was up … 125%!
So before you switch to another fund (or take advice from some random person on Reddit), I’d suggest you focus on the only two things you can control: the percentage of your super you have in the sharemarket, and the fees you pay each year.
Personally I’ll remain invested in the simple, ultra-low-fee, globally diversified, indexed balanced fund.
Okay, what super funds do you like?
Lots.
In the last few years we’ve seen many funds drop the fees on their indexed options, and I reckon eventually they’ll all be heading towards zero.
So before you do anything, go to Your Super comparison tool and compare super funds first.
Why do you focus so much on fees and not on returns?
The long-term evidence is clear:
If you’re investing in anything other than a low-cost index fund, you’re likely to be a loser.
Ratings agency Standard and Poor’s (S&P) has tracked over one-thousand managed funds and ranked them against a simple, low-fee index fund over a 15-year period.
Almost nine in ten (87 per cent) international share funds failed to beat a simple low-cost index fund.
Almost eight in ten (77 per cent) Aussie share funds underperformed a simple low-cost index fund.
Faced with this overwhelming evidence, investors the world over have embraced index funds.
It’s not even debated any more … except here in Australia.
We’re like the flat-earthers of the finance world, openly questioning the ‘lower fees equal higher returns’ argument.
And the result is … last year Aussie super funds swiped $32 billion in fees, which over the long term robs future retirees of hundreds of thousands of dollars from their nest eggs.
Anyway, of the thousands of super funds on offer, only a surprising few offer low-cost index funds like the ones I showed you above.
Can’t I just switch and pick the few funds that outperform?
Well, the S&P research has found that today’s best-performing fund is more likely to become one of the worst performers in a subsequent period than it is to stay on top (in other words, today’s winner is tomorrow’s dog), suggesting there’s more luck than skill in investing.
Yet don’t take it from me … take it from Warren Buffett:
When Buffett dies, he’s requested that his entire estate be invested, on behalf of his wife, as follows: 10% into short-term government bonds, and 90% into an ultra low-fee S&P 500 index fund, which automatically tracks the 500 largest companies in America.
That’s it!
So, while a lot of people with vested interests might try and talk you out of a low-cost index fund in favour of a fancy, expensive managed fund, I’ll leave my super where it is for now.
And I’ll leave the last word of advice to Buffett, who at 87 is old enough and rich enough to speak the truth:
“Just remember, the person you're talking to ... your fees are their income.”