Share losses no reason for super members to panic

Super fund members told to sit tight for share market recovery.

Don’t panic over share losses

Australians contemplating retiring this year should not press the panic button over the rout on local and overseas shares this week, leading financial experts have told YourLifeChoices.

AMP Capital chief economist Dr Shane Oliver said yesterday that while markets had not seen the extent of the recent volatility “for a while”, the size of the falls was not unusual.

On Tuesday, the ABC reported that sell-offs on the Australian Securities Exchange (ASX) had wiped $60 billion off the value of shares.

At the start of trading on Wednesday, the market began to recover some of those losses and the ASX closed 9 per cent higher than the previous day.

SuperRatings chief executive Kirby Rappell told YourLifeChoices that the superannuation funds of most Australians would have fallen in value by around 2.1 per cent since the start of the week.

“For instance, a super balance of $100,000 on Monday would be about $2100 lower by Tuesday, with yesterday’s correction reversing some of those losses,” he said.

“For a member with a balance of $100,000 on January 9, the combined impact of Australian and international share market performance on their balance is -1.8 per cent or $1800 less.”

However, he said a member with funds fully invested in Australian shares would have suffered a loss of $3700.

“When there is a market drop, the balance of your superannuation suffers; however, it will only affect your retirement proceeds if you withdraw your funds, and is more of an issue for members nearing retirement,” Mr Rappell said.

“With the median balanced fund generating returns of 9.7 per cent and 5.2 per cent over five and 10 years to the end of 2017 respectively, it is important to keep things in perspective.

“If you do not need to withdraw your funds soon, then there is time to ride out the period of poor performance, allowing your account balance time to recover.”

Dr Oliver agreed, saying: “The declines on Wall St and the Australian stock market have created a lot of interest, but superannuation fund members should not be concerned.

“In any one year, it is quite normal for there to be a number of dips, perhaps two or three, of this magnitude.”

In 2012, the value of the share market’s benchmark, the ASX 200 index, fell 10 per cent; in 2013, it declined 11 per cent; in 2014, it retreated 9 per cent and between April 2015 and February 2016, it fell sharply by 20 per cent.

Despite these “corrections”, average returns posted by superannuation over the past six years were around 10 per cent, Dr Oliver said.

“Last year, the pull-back was 6 per cent. Pull-backs are part and parcel of share markets and are generally only a concern if you are heavily invested in growth stocks and have imminent plans to retire at the time of the declines.”

He added that while stock markets may have been down by around five per cent earlier this week, the trend is not comparable to an event like the Global Financial Crisis (GFC). At that time, nearly 10 years ago, the value of shares haemorrhaged between 50 and 55 per cent.

“We haven’t seen the same economic factors lining up that led to the GFC,” Dr Oliver said. “We haven’t had a bear market, very high interest rates or high inflation that would signal a recession. The normal signs of a recession just aren’t there.”

However, the economist admitted that anyone who may have drawn down their super fund this week would have received a smaller balance than they could have expected last week.

His advice to super members wanting to retire soon is to sit tight until the market recovers.

He added that just because shares had fallen 5 per cent, that would not be the size of the decrease in a balanced fund.

“It might be closer to 2 per cent because those funds spread their risk across a number of assets, such as property and cash.”

Opinion: Don’t set and forget your nest egg

The past few days of volatility on global stock exchanges is a timely reminder to seek regular financial advice about how your nest egg is structured.

The closer you are to retirement, the more heavily weighted your superannuation should be to lower risk investments.

If you drew down on your super this week and had invested in a high-growth fund, then you will know the pain of not getting as big a pay cheque as you were expecting a week ago.

SuperRatings chief executive Kirby Rappell told YourLifeChoices yesterday that Australians nearing retirement ought to seek advice to ensure their investment strategies matched the desired risk profile for their age.

“No one likes volatility, especially if they are purely invested in shares,” Mr Rappell said.

“Generally, Australians have more traditional and balanced portfolios in their superannuation fund. This ensures that just 25 per cent of their super is in local shares and another 25 per cent in global equities.

“With just half of their investment exposed to market volatility, they can generally count on stability for the rest of the portfolio.”

If you are not sure how your super money is invested, then check it out. I made the mistake of taking my eye off the ball with one of my two super funds and I now regret it to the tune of around $4000.

That is how much I calculated I lost by not reading the material the super fund manager would periodically mail to me. Late last year, I decided to roll my two funds into one. That is when I realised that for the past four years, my money had been invested in a cash fund.

I was horrified knowing that cash in investment terms is a plodder. The explanation from the fund manager made me angrier. Several years ago, the super fund had been sold to the latest manager and at that time, unless you actively nominated how you wanted your money invested going forward, the default position was to put the funds in a cash account.

There are many reasons to be vigilant about how your super or any other investment is being managed. Every week, the investments watchdog reveals some of them in the form of fines or  deregistration of financial planners found to have duped their clients.

And the Big Four banks are no exception. Late last month, the Australian Securities and Investments Commission (ASIC) outed the major banks over a failure to give customers advice that was in their best interest.

ASIC found that nearly 70 per cent of the investments handled on behalf of customers was parked in internal financial products – the bottom line being that planners associated with the banks were recommending funds that would return the most profit to the mother company.

The moral of the story is that you cannot set and forget your investment or super strategy. Periodically check that your money is parked in a product that matches your particular circumstances. Personally, I would even get a second or third opinion, just so I could compare advice.

And finally, before you sign on with a financial expert, check ASIC’s data bank of banned and disqualified people.

 

RELATED ARTICLES

    All content on the YourLifeChoices' website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care, but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness with regard to your circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. Financial comments provided by readers cannot be relied on as professional advice, but as general comments only.





    COMMENTS

    To make a comment, please register or login
    johnp
    8th Feb 2018
    12:08pm
    Some good points there however best to go an Industry Super Fund for better growth !!
    KSS
    8th Feb 2018
    12:23pm
    But even industry funds have a default position that may not be in your best interest. You still have to keep an eye on things or pay the price.
    Knight Templar
    8th Feb 2018
    12:11pm
    The value of the share market is critical only when buying or selling. Markets recover. The old adage comes to mind "sell in boom - buy in gloom. That's what astute investors do.

    8th Feb 2018
    12:15pm
    Most people's super funds give the options of Cash, Capital Secure, Capital Stable, Balanced Growth, and International investing (and a combination of some or all). As we get older, and seek more security, it is prudent to gravitate towards the Cash - Capital Stable end of the spectrum i.e lower risk. You cant blame other people if you don't know what is going on with your own money. With a car, we regularly check our tyre presseure, ensure our tank is refilled when getting low, and make some attempt at cleaning the windscreen from time to time. With a much larger asset (in most cases), why wouldn't you take the same sort of care?
    KSS
    8th Feb 2018
    12:25pm
    But it is so much easier to blame someone else, Big Al!

    8th Feb 2018
    1:01pm
    It's all based on gambling.
    Anonymous
    8th Feb 2018
    1:05pm
    What a totally ridiculous comment Knows-a-lot! So, Warren Buffett is a gambler? Let's know when you decide to come back to planet Earth, old boy!
    Tib
    8th Feb 2018
    2:52pm
    Yes Warren Buffett is a gambler , all investment has risk. Warren Buffett is just very good at it. The more knowledge you have the more you can reduce that risk. But nobody wins a all the time.
    Tib
    8th Feb 2018
    2:58pm
    I usually keep my super in 3 investment types. I draw from cash which usually has a couple of years of living costs in it in case of a crash so I don't have to sell shares. I always have the largest sums in shares because they have the best returns. I can also move sums back and forth depending on the share market.But nothing is full proof.
    Old Geezer
    8th Feb 2018
    3:14pm
    I do very similar Tib. I hold about 3 years living expenses in cash and the rest is invested in the share market and other better performing assets. When the market goes up I sell down my investments and when it falls I buy shares. Yes I have bought some shares on Tuesday. They are now very close to my sell point now.

    I just can't understand why people buy bargains I everyday life but buy shares when they are expensive and sell when they are bargains.

    8th Feb 2018
    3:13pm
    Tib, based on your logic, every retailer is a gambler - correct? How does the MD of Woolworths know, when his staff open the doors of their supermarket, that anyone will come in and spend their hard earned? He doesn't! Thus to fill his shelves on the expectation that shoppers will turn up, is a gamble, correct? The term 'gambler' is pejorative (look it up in the dictionary). I would strongly argue that Warren Buffett is not a gambler, but then you seem to know it all!
    Old Geezer
    8th Feb 2018
    3:23pm
    Gambling is taking big odds to win and hoping one gets lucky. I only invest where the odds of making money are very high compared to losing money. I don't just put my money on one horse but quite a stable of them that do many things. So if one part of the market is not preforming the other horses will be galloping along nicely.
    Tib
    8th Feb 2018
    8:41pm
    Here look up your dictionary
    Gamble
    to take a chance on; venture; risk: I'm gambling that our new store will be a success.

    All investments are a gamble. Even when Woolworths open a store. Woolworths opened Masters hardware and lost. Read for yourself:
    http://www.abc.net.au/news/2016-01-18/timeline-the-rise-and-fall-of-masters-hardware/7095438
    And you sir seem to know nothing. You seem to be one of these people who imagine they have a sure fire way to win the lotto. All investments are a gamble. While you do your best to reduce the risk all investments have a risk. If you think anything else put your money in the bank because you are not capable of serious investing.

    8th Feb 2018
    11:03pm
    You know what Tib, taking your car out on the street is a gamble. Getting out of bed in the morning is a gamble. Eating breakfast might be a gamble - you never know when a sharp object might have made its way, inadvertently into your cereal box. You need to grasp the concept what a real gamble is. Warren Buffett would hardly be likely to place his money on Race 4 horse 2what a real gamble is - but that subtlety seems to be beyond your limited intellectual capacity. Best get a life, old son!
    VeryCaringBigBear
    9th Feb 2018
    7:39am
    Having cash in the bank is a big gamble as after inflation and tax you get a negative return. Yet many take this bad gamble.
    Tib
    9th Feb 2018
    10:27am
    Big Al if you have any real money which I doubt enjoy it while you can because a fool and his money are soon parted. And you are a fool.
    Tib
    9th Feb 2018
    1:21pm
    I agree very CaringBigbear but its probably better than Big Al's investment decisions.