The World Heath Authority (WHO) says the planet is in uncharted territory as coronavirus outbreaks continue to cause global gloom – both on the health and financial fronts. And Nestegg reports that as the sell-off of Australian shares continues, hopes of a V-shape recovery are falling.
Nestegg analyst Paul O’Connor said the geographic broadening of the coronavirus had undermined the hoped-for recovery scenario, given growing doubts about the effectiveness of containment measures outside China and the scale and speed of policy stimulus measures.
The Reserve Bank of Australia (RBA) cut official interest rates to a record 0.5 per cent on Tuesday – and another cut is expected – as share markets continue to plummet, wiping out all the gains of January and February, when it repeatedly broke records.
The wipeouts on world share markets are having a big impact on retirees’ nest eggs, yet industry experts say fund members should resist the temptation to switch to more conservative investment options that could leave them worse off in the long run.
Most super funds have about half of their invested retirement savings exposed to Australian and overseas shares and both have been taking a beating.
Fund researcher SuperRatings told The Age and The Sydney Morning Herald that the value of a typical ‘balanced’ fund – the most popular choice for retirees and pre-retirees – was down about 3.5 per cent. That equated to a loss of $3500 for each $100,000 held in super or $35,000 on a $1 million portfolio.
However, industry experts say fund members should sit tight and look longer term.
SuperRatings executive director Kirby Rappell said historical global health scares tended to have only a short-lived impact on super account balances and that funds were very resilient during the Ebola outbreak in 2018 and SARS in 2003.
Mr Rappell said that funds were typically down about 2.1 per cent after three months in those outbreaks and recovered quickly.
Super experts say the worst thing fund members can do in a share market meltdown is to panic and switch their super into more conservative, lower-returning investment options.
The Organisation for Economic Cooperation and Development (OECD) says the global economy could still recover to 3.3 per cent growth next year if coronavirus outbreaks were contained and reached a mild level.
Rose Kerlin, group executive at AustralianSuper – the nation’s biggest super fund – said super was a long-term investment.
“If you see your super balance fluctuate, it can be tempting to make a quick change, but it’s important to stay focused on the long term,” she said.
Sydney-based fund manager Investors Mutual told The Age and The Sydney Morning Herald that volatile investment markets, where fear led to indiscriminate selling, were “nothing new”.
Shares in all companies – “the good the bad and the ugly” – were being sold down heavily as investors reduced their overall exposure to equities, the fund manager said in a note to clients.
However, the coronavirus should be kept in perspective, Investors Mutual said.
“While the coronavirus is being taken very seriously by government authorities, so far the virus has led to around 3000 deaths,” it said.
“It is worth noting a 2017 World Health Organisation study attributed between 300,000 and 650,000 deaths per annum from the annual influenza virus,” the fund manager said.
Prime Minister Scott Morrison on Monday said he would meet with Reserve Bank heads to discuss the impact on the economy.
“This is a health crisis, not a financial crisis, but it is a health crisis with very significant economic implications,” he told parliament.
“We will be focusing on ensuring that we keep Australians in jobs, we keep businesses in business, and we keep investment flowing during what will be a very challenging time for the Australian economy.
“It’s important we understand that on the other side of this crisis, when the health issues are addressed, there will be a bounce back, and our plan will be ensuring that Australian businesses and jobs and the economy bounce back strongly.”
Have you contacted a financial adviser or your super fund for advice in relation to your nest egg?
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