Our greatest national financial legacy?

Why it's time for an Australian sovereign wealth fund – The Australia Fund.

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I'm typing this at 9.20am on Friday, before the ASX opens.

It'll probably be down. Perhaps by a couple of percentage points, if the futures are correct (they're less accurate than you might think, by the way).

The falls will be, in large part, a domino effect after the US S&P 500 fell 3.25% overnight.

But I don't want to talk about that, today.

In part because I've done so this week a couple of times already, including in a video I hope you'll have a look at, if you haven't, already.

And while I could do it again, sometimes you have to lift your head above the 'here and now'.

In part, that's precisely the message I've been trying to send this week – that the 'here and now' can blind us to the long-term potential of investing in shares if we let it.

(It can also blind us to irrational exuberance if we let it, too.)

So let's look up, just a little…

Can you imagine what a little bit of long-term thinking might be worth today if it was done – and the ideas implemented – in 2012, 2002, 1992, 1982 or 1972?

Which is not to say there has been no wonderful long-term thinking in the past.

The countless hours of medical research that have saved millions (tens of millions?) of lives.

The technological breakthroughs that have given us the medium you're reading this through right now.

The vision that set apart public spaces in our cities for parks and other recreational activities.

The invention of the index fund for investors.

And yes, even government policies, including Medicare, deregulation, superannuation, the GST, our modern gun laws… and so much more.

So much more, in fact, that I've certainly missed some wonderful past decisions and actions that we benefit from today.

Those people could have been consumed with the day-to-day, and not bothered to imagine what a better world or better country might look like.

They could have just obsessed over that day's issues, or – in our case – that day's market movements.

And they – and we – would be much poorer for it.

I've told you before, for example, about Vanguard's numbers showing that a $10,000 investment in the ASX in 1991 would have been worth $160,000 30 years later.

There were a lot of 'today's worries' in the three decades between those two amounts.

And yet, there was a 16-fold return in the offing. We just had to look up a little.

And so I want to do a little of that today.

I want to imagine a better future.

There are a lot – and I mean a LOT – of things that I might change were I to become the Grand Benevolent Dictator of Australia at some point.

I'd probably ban penalty shoot-outs in soccer, and zero-carb beer, for starters.

But I'll restrict myself to just one financial change today.

And it's something I've been on the record about for a long time but which came up again in a question from a listener to the Motley Fool Money podcast I host.

He asked me to have a look at Norway's sovereign wealth fund – something I've been a fan of for a long, long time.

In doing so, I read the fund's own explainer, in full, for the first time.

And, well, it got my blood up again.

We are one of the most resource-rich countries on Earth. Perhaps (and I haven't done the research!) the most resource-rich per head of population.

In any event, we have a LOT of the stuff.

Oil. Gas. Iron. Gold. Copper. And more.

Assets that were in the ground when our fathers' fathers' fathers were still millennia away from being born.

And assets that both Australian and foreign companies pull out of the ground and sell, mostly overseas.

The proceeds from which… go into general revenue and get spent on whatever the government of the day fancies.

These are millions of years old. Our national inheritance.

Which we harvest, sell and spend, leaving bugger-all for the kids, and their kids and their great, great, great, great grandkids.

Oh sure, a small amount of it might go into infrastructure, and that might last a few decades.

But most of it? Spent on getting a politician elected or re-elected, enabled by a population (that's us!) who'll happily swallow the 'poor you' routine that the pollies give us to make us feel sorry for ourselves and then happily vote for them to fix the problems they've convinced us we have.

And sure, some of those problems are real.

But isn't it just a little bit selfish to help ourselves to the rocks, liquids and gasses left to us by generations of our forebears and flog 'em off to pay today's bills with nary a thought for those who come after us?

Is that really to be our legacy?

Or, we have Norway's example to follow.

In Norway, all fossil fuel royalties go into their sovereign wealth fund.

The government of the day – by, in their words 'broad political consensus'… just imagine that! – gets to spend the returns of the fund, but the capital is preserved.

And – how great is this – the contribution of the sovereign wealth fund pays for a full 20% of the Norwegian government budget these days.

Can you imagine how flush our government coffers would be today if that structure was put in place here in the 70s, 80s or 90s?

We wouldn't know what to do with all of that money.

And so, with that example from Norway, what are our politicians doing?


To their credit, the Coalition under John Howard, and with Peter Costello as Treasurer, put some of the Telstra privatisation proceeds into the Future Fund – a very narrow but welcome imitation — so that sort of thing is not without precedent here.

We have not one blueprint but two – Norway's fund and our own.

And, so, with both of those examples, what are our politicians doing?

Still nothing.

There are some people who couldn't care less about the legacy we leave to future generations. They've probably already stopped reading.

But if you've got this far, I reckon you care about the country we leave to our kids, and their kids and grandkids.

(And that's more than just finances, by the way, but let's stick to the topic today.)

We look back and wonder 'what if' the government had done something similar to Norway in the 70s or 80s.

Just as our descendants will wonder, in 2052 or 2062, what might have happened if we'd followed Norway's example, today.

Isn't it time we stopped frittering away the proceeds of our national inheritance?

Isn't it time we turned some all-but eternal resources into an all-but eternal national income stream?

I think so.

It's time for an Australian sovereign wealth fund – The Australia Fund.

It just requires the political will.

Over to you, Canberra.

(And the market? It'll be more than okay, I reckon. No promises and no guarantees, but we can have our own, personal, Australia Fund – by investing regularly and staying the course, just like Norway's Sovereign Wealth Fund, even when things get choppy in the short term. That's the lesson of history, for governments and individuals alike!)

Have a great weekend!

Fool on!

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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