How the coronavirus could ruin your retirement savings

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Financial markets are starting to feel the pinch as they react to the outbreak of the coronavirus, and this could have huge implications for superannuation returns.

The outbreak of the coronavirus has led to a selloff in global share markets as investors switched focus to safe-haven assets.

Leading research house SuperRatings said that Asian equity markets have borne the brunt of the initial impact, but the effects are likely to be felt across global markets, noting that previous outbreaks over the last two decades have resulted in short-term equity market corrections within a range of 5–15 per cent.

SuperRatings executive director Kirby Rappell said that super funds had managed similar global crises well in the past and were well placed to manage the coronavirus issue just as well.

“The funds we’ve spoken to are not responding to the current market situation with knee-jerk reactions,” Mr Rappell said.

“They’re watching developments closely, but so far market volatility has been in line with similar risk events experienced in recent years. Fund investment strategies are generally well placed to manage these types of movements.”

Looking back at previous epidemics, such as the ebola outbreak in 2018 or the SARS epidemic back in 2003, Australian super funds have proved relatively resilient to short-term market movements. Quarterly returns during each episode have ranged between -2.1 per cent and +4.3 per cent, with markets largely unfazed over longer periods.

According to SuperRatings, funds are unlikely to implement any dramatic changes to their investment strategies without further evidence that the virus will deal more prolonged damage to the global economy.

Con Michalakis, chief investment officer at StateWide Super, said that while there would undoubtedly be some economic fallout, his fund remains focused on long-term member outcomes.

“This is a classic case of a black swan, and like all black swans, the markets struggle with uncertainty,” said Mr Michalakis.

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterised by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.

“What we can be sure about is that the economy in China and Australia will be slower due to the restrictions in place in the first quarter of 2020. However, from a long-term perspective, diversification and strategy based on member age and risk tolerance is more important,” said Mr Michalakis.

Suzanne Branton, chief investment officer at CareSuper, said the fund’s investment strategies were designed to provide downside protection during bouts of market turmoil.

“When new influences on the investment outlook emerge, it’s important to analyse and monitor these closely,” said Ms Branton.

“There could be a short-term impact that provides investment opportunities or avenues to adjust positioning. However, there are reasons to expect a more short-term rather than extended large-scale market impact. Our investment approach is structured to deliver downside protection so our investment program resilience to short-term volatility is high.”

Are you worried about the financial fallout from the coronavirus outbreak hurting your retirement income in the long-term?

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Written by Ben

9 Comments

Total Comments: 9
  1. 0
    0

    “Are you worried about the financial fallout from the coronavirus outbreak hurting your retirement income in the long-term?”

    The short answer is no. My reasons for this are that my super fund in the past has weathered all types of financial hurdles and I have confidence that they will also weather this one. Also there appears to be a breakthrough by Australian researchers in the search for a vaccination for the corona virus. Our investment strategy is low on risk so the need to rush into selling at risk investments shouldn’t apply to our level of investment.

  2. 0
    0

    Don’t have savings, super or shares, so why would I have any worries about future finances?

  3. 0
    0

    Yet again YLC ‘goes to print’ with sensationalist headlines that actually have no substance.

    Any downturn in the markets will rebound as soon as the virus burns itself out; as happened with SARS, MARS, Swine flu, Bird flu and others. The liklihood is that in 3-4 months it will be over. Precisely the reason we are advised to hold 3-4 months living costs in easily accessible funds so that we can ride out short term volitility.

    And don’t forget, sharemarket downturns present opportunities to pick up undervalued shares which in turn means greater profit in a few months time.

    • 0
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      See high and buy back low.

      No bargains yet in fact I am still selling into the market strength.

    • 0
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      Yes Retire Well me too. This market is as overpriced as I’ve seen it in 30 years of investing.
      It’s a bit concerning that bond prices are falling. Not fast but as you know it can suddenly fall over and that is a concern.
      I’ve been waiting for some time now for prices to look like there is some value there but I can’t see any yet.
      Maybe times are very different now. Damned if I can figure out why Yes on major indexes are hitting 30 when profits and sales are falling.

    • 0
      0

      Not YES P/E not sure why spell check did that haha

  4. 0
    0

    if you look at the vim share index the majority of share prices in australia are rising…only 48 have failed…… something is a bit misleading in this story….


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