10th Nov 2017

Share market surge has doubled your super returns

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Olga Galacho

Superannuation members whose funds have been invested in Australian shares are collecting a windfall, thanks to the prolonged bull market.

This week, the benchmark ASX-200 index broke through the magic 6000-point mark, adding billions of dollars to the share prices of stocks on the Australian Securities Exchange.

SuperRatings Chief Executive Kirby Rappell told YourLifeChoices that analysts estimate the strong increase in prices characterised by a bull run began in February 2016.

“In the 19 months to the end of September, the ASX-200 had surged 26 per cent and since then it has galloped ahead another 300 points,” said Mr Rappell.



“If your superannuation is invested in a median balanced portfolio, it would be worth over 16.4 per cent more than it was at the start of the year.

“For instance, a starting super balance of $50,000 would have grown by $8200.”

Mr Rappell said most balanced options target returns of three per cent above the inflation rate over a 10-year period. However, as the Consumer Price Index has not risen beyond two per cent in the past couple of years, targeted returns are likely to be more subdued in the short term.

“If funds were returning on target, this would be approximately 7.5 per cent for the period,” he said.

“On a $50,000 account balance, this would be around $3750 a year, compared with a potential $8200 thanks to the buoyant share market.”

Broadly, if you are a man aged between 60 and 64 you can probably double these figures as the median super balance for that demographic is $100,000.

But there’s bad news for women in that age group as the median balance for them is just $28,000, according to the latest data (2013/14) from the Australian Institute of Superannuation Trustees. Thus the gains from a roaring share market this year will have added only around $4600 to these women’s nest eggs.

A more worrying statistic from a two-year-old study by the Association of Superannuation Funds of Australia found that 55 per cent of females aged 65 to 69 years reported having no superannuation.

This means that unless they have private investments, this group of women would not benefit from any share market surges, with their only prospect of keeping up with inflation being the indexation of Age Pensions.

But apart from this unfortunate cohort, Mr Rappell said “this has been a good year” for superannuation.

However, he warned that “double digit returns don’t go on forever”.

“Returns have had a pretty strong run lately, but over a 10-year period, you will also see returns that dip under a fund’s target.

“Superannuation investing is a long-term game and while people can enjoy the fact that today, the stock market is having a positive impact on their balances, they should by the same token not get too concerned if there is an occasional year when the returns are less than stellar.”

Is your superannuation investment performing well? Have you checked that your super is  invested in a balanced portfolio that benefits from share market gains?

Related articles:
Don’t let super fall into wrong hands
How super works
Retrieve your lost super





COMMENTS

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dreamer
10th Nov 2017
11:31am
any thing over a $1.00 i am happy
Paulo
10th Nov 2017
11:35am
The Stock Market reached a peak in Nov 2007 (about 6700) and has been in the doldrums since. You will note that the index is still, ten years later, well under that level.
Rosret
10th Nov 2017
11:42am
Stock market is doing very nicely at the moment. You just need to watch for the new developments in the mill.
Old Geezer
10th Nov 2017
11:50am
Technically the stock market looks like taking out the old 2007 highs in the next 6 to 9 months.
Rae
10th Nov 2017
12:07pm
Shares have been paying nicely since 2007. Any buying through 2008/9 was beneficial to returns.

International share buys were especially good when the dollar was high during those years.

It is a pity people panic when shares fall as that is often the best time to buy in.

By rebalancing a bond and cash buffer can prevent the need for panic.

Using stop/loss can assist to control trading risk.

I hope your'e right OG it certainly looks like a breakout finally.
arbee
10th Nov 2017
10:31pm
Paulo, Everyone answering your post seems to be happy, why are they not querying what their fund balances would be if we had gone up at a similar rate to what the US has.
OG, even if it does reach the 2007 highs my question is, why so long to do so
If the US market has a correction we will follow it down at the same rate even though we haven't increased at the same rate as they have over the past 10 years.
Rosret
10th Nov 2017
11:39am
Figures aren't that good. $8.2K on $50K. That is an over 16% gain.
However the annual report did make me smile - at last an income stream. Well at least for 2018 anyway.
I feel like a farmer yielding a good crop for the season.
Retired Knowall
11th Nov 2017
11:09am
Just like a Farmer you can experience drought, pest plague and crop failure, This article seems to crow over good returns, just like day ends in night we will have a series of negative returns.
Old Geezer
10th Nov 2017
11:53am
Interesting as I got howled down only about a week ago when I suggested those sort of returns.
Rae
10th Nov 2017
12:40pm
Not by me OG. Strange how the media totally ignored the international share return a couple of years back and there has been little about the REIT situation.

Super returns should be very healthy and if not some serious questions to the fund is in order.
Rosret
10th Nov 2017
12:48pm
Rae and OG even though the stock market has been buoyant I had lost faith in the superannuation fund managers who seem to have control of what they pass on to us. At last we have a return. Every self funded retiree IS counting on it. I do hope it lasts.
Old Geezer
10th Nov 2017
2:43pm
Know what you mean Rosret and that's why I set up my own SMSF about 20 years ago. Best thing I ever did as my super was going no where.
Rae
10th Nov 2017
2:59pm
I think they lack control Rosret. That is a problem.

They are locked into a set investment prescription and rarely fail to follow the herd. The contributions are based on a averaging formula too which can't benefit from value investing principles.

Plus most charge way too much.

A SMSF with a low cost index fund component is great for those willing to learn about markets and use risk adjustment strategies.

Regardless of an ASX moving out of the glitch it is in, the long term trend for balanced funds has been fairly unexciting.
*Imagine*
10th Nov 2017
3:29pm
You were not 'howled down' you were reminded that, as the article above also states: “If funds were returning on target, this would be approximately 7.5 per cent for the period,” he said.
“On a $50,000 account balance, this would be around $3750 a year, compared with a potential $8200 thanks to the buoyant share market.”
Again, an average is just that up + downs we have had ups before and downs, and there is nothing surer that will have them again. Hence the long term Average is around 7.5%. That is not an opinion it is a verifiable fact.
Old Geezer
10th Nov 2017
3:40pm
7.5% is a very low target. No wonder they have such low returns.

This might be worth a play with.

https://www.noelwhittaker.com.au/resources/calculators/stock-market-calculator/

Note from October 2016 to October 2017 the return is 16% which is over twice that 7.5%.
*Imagine*
10th Nov 2017
4:42pm
OG, as Paulo correctly points out, in 2007 the share market index was higher than it is now. A basic understanding of percentages will show you that if the market drops by 50%, e.g. from 7000 to 3500, then it will need to gain 100% to get back to where it was. Too many advisers forget to mention that little fact. They would rather get all excited about a 20% rise that still hasn't brought us back to the highs of a decade ago. I imagine that losing perspective caused a whole lot of people to jump into the share market in 2006/7 only to be severely burned as the index regressed to the mean. Any body who wants to fool themselves into thinking that they will gain more than the average in the long term, needs to learn maths, or at least talk to a farmer about average rainfall and what it means to have a good season.
Old Geezer
10th Nov 2017
5:40pm
Unfortunately you are looking at the wrong index to show you the real return from 2007 to 2017.

You need to look at the accumulation index. As you will see from the chart it gives a completely different story to the basic index that most people look at and come to the wrong conclusion.

Here is one site where there is a graph of this index.

https://au.investing.com/indices/s-p-asx-200-accumulated

Select "Max" for the index since 2006. We were back to where the market was in 2013 and have climbed a fair bit more since.
*Imagine*
11th Nov 2017
12:05pm
Thanks for the reference to the accumulation index that you suggest that I should refer to OG. Very interesting source. However, lies, damn lies and statistics have come around to bite you. The index that you quote reveals an even worse growth scenario than 7.5%. You have destroyed your own argument.

The index states that on Nov. 1 2007 it was valued at 41,416.7 and ten years later on Nov. 1 it was 59,716.9 a difference of 18,300.2. This works out as a percentage increase of 18,300.2/41,416.7x100 = 44.2%. However, it took ten years to gain this 44.2%, that is an average of 4.42% per year. I imagine that you didn’t bother looking closely at the figures or you would have kept quiet about this one.
Bonny
11th Nov 2017
3:10pm
I very much doubt OG would have had much money on the sharemarket in 2007 as I know I didn't as it was quite a bubble. You are also assuming that people put all their money in at the stockmarket highs but most astute investors would have been pulling it out not putting it in. Your returns tell me if you had invested at the worst possible time you would have still made money. Same cannot be said with having bank deposits as they lose money nearly every year after tax and inflation. Just goes to show only those who panic and sell at the wrong time as the real losers.
*Imagine*
11th Nov 2017
7:00pm
Well done Bonny - you can pick the bubbles and bail out in time. Well what about now? Are we in a bubble? Using OG’s reference, between Feb 2016 and Nov 2017 the accumulation index ASX 200 shows a gain of 33%.
“Your bubble” of 10 years ago, where you knew that there was a problem and got out of the market, shows from Feb 2006 to Nov 2007 there was a gain of 29.8% just before a crash of 45.6% ending in Feb 2009.

If history repeats, then will the bubble “experts” such as yourself withdraw from the ASX now? After all there is a prospect of a regressive decline between now and Feb 2019. I imagine if you are like me and millions of others, you will stay invested in the ‘hope’ that all will be well and there will be no repeat of ten years ago. But then judging by your posts, and those of OG, you are both far wiser than me.
Rainey
12th Nov 2017
8:43am
Both Bonny and OG focus on what returns CAN be achieved in some circumstances, not on what the AVERAGE AUSTRALIAN is achieving. We all have our skills, diverse experience, diverse knowledge and education, and preferences as to how to spend our time. I think it would be cruel and disgraceful for anyone to suggest that those who don't excel in the financial area, but have valued skills and knowledge elsewhere, should suffer unfairly in old age because they can't attain optimum returns on their hard won savings. This seems to be the positon Bonny and OG take - that the government should make policy based on the assumption that if SOME folk can attain 15% returns, then anyone who can't should sink in the mire and suffer hardship. That's a very selfish attitude.

No, OG, you were not ''howled down'', You were merely asked to consider AVERAGES rather than OPTIMUMS. There's no doubt some folk achieve high investment returns. Some folk also earn high salaries. Should we crucify everyone who doesn't? I think it very sad that so many have lost the capacity to understand the value system in the capitalist economy and to respect the safeguards that were intended to compensate for its flaws.
arbee
12th Nov 2017
11:22am
Very well put Rainey, most of us would come under the category that you mention. I know I do. I have been involved with my SMSF since 1979 and have seen many changes implemented since then. I certainly don't have the time or probably the expertise to change things regularly. I feel strongly that the US stock market is overdue for a major correction and when that happens down will come most of our super balances. What annoys me most is that while most other stock markets have boomed since the 2007 meltdown, ours has not but will still crash again if the US's does.
Bonny
13th Nov 2017
9:13am
No idea what OG is doing but I have a lot more money in cash than I normally do as I take money out as the market rises and then reinvest when it corrects as I see value then. I don't see much value in today's market either in shares or property. Saying that I do however see us reaching new highs on the all ordinary's before markets correct significantly. Remember significant corrections just return shares to their rightfully owners.
Old Geezer
13th Nov 2017
11:21am
Rainey I don't look at averages as that's what financial advisors use to make themselves look good to their clients. Averages also includes many levels of fees paid along the way as remember the investor only gets what's left after all the other pigs in the tough had had their fill.

It is not what you earn that matters but what you do with what you earn that counts. Many people have become very wealthy on earning very little.
Raphael
10th Nov 2017
9:03pm
“ A more worrying statistic from a two-year-old study by the Association of Superannuation Funds of Australia found that 55 per cent of females aged 65 to 69 years reported having no superannuation”

Why is it worrying ? Nonsense statement without understanding the underlying reasons
Perhaps these women were stay at home mums , so their partners will have the super
In any case they may have other investments or be on full pension
Old Geezer
10th Nov 2017
9:33pm
They have probably already spent it on the world cruise or new caravan.
Raphael
10th Nov 2017
9:41pm
You’re probably right OG :)
arbee
10th Nov 2017
10:26pm
Its doing all right, but doubling, I don't think so, certainly not showing that on my super. Unless you are in a high growth fund which most retirees are advised against, the growth is only modest in a balanced fund.
My biggest concern is how much the American stock market is above the previous meltdown high. I think it has almost doubled, where we are still to reach meltdown levels, in fact we haven't even got back to where we were before the meltdown. Maybe an article like this could be written if we were at the same percentage levels of increase over that period of time that USA is. If the American market has a large correction we always seem to go down the same amount that they do but never go up at the same rate we do.
who and how are these things being manipulated to the detriment of us retirees.
Bonny
11th Nov 2017
7:31am
From memory our market rose a lot more than the US one up until 2007 somInsuggest you do a comparison chart over a longer period. The US also did the right thing after the correction in 2007 whereas we stuffed it up badly and failed tonallow to flush the excesses from the economy. Hence the big difference today.
arbee
11th Nov 2017
9:49am
Surely you don't mean the worlds greatest treasurer got it wrong back then with all the big cash splashes. Mind you there doesn't seem to have been any improvement since the change in government either.
Bonny
13th Nov 2017
9:06am
Yes the world's greatest Treasurer really stuff it up with his mate Rudd. Not only with way too much cash but his mates at Reserve bank hiked interest when they should have cut them. What we now have as a result is a housing bubble, interest rates too low and a mountain of debt. Awesome result.
ex PS
13th Nov 2017
2:17pm
At the end of the day it must be recognised that the Sharemarket is considered HIGH RISK, no responsible financial advisor would suggest an" eggs in one basket" approach to investing in shares.
At the end of the day, if you are not in a position to make money back and you are depending on your Super to live on a low risk Balanced type approach is probably where most of your investment capital should go. I only put what I can afford to lose into International or Australian shares.
Their are investors and there are speculators, in the long run the Investors will come out ahead.
At least that is the strategy that has worked for me over the last 8 years.
Old Geezer
14th Nov 2017
11:07am
Have you earnt enough over those 8 years to cover tax and inflation and has it given you enough to live on as well. If not then it is HIGH RISK.

The investment with the biggest risk is money in the bank as after tax and inflation it has a negative return nearly every year. That is what risk means to me.
ex PS
14th Nov 2017
8:19pm
Why would a person over sixty with a Super investment fund and other investments be paying tax?
I have not paid tax in 8 years, and I definatly don't go anywhere near banks, unless it is to invest in shares. If you are not earning enough on your investments to cover inflation, you are not an investor or a speculator, and you need to get some advice.
Your comment indicates a certain lack of awareness about managing money after retirement.
My wife and I have lived off my Super and other investments for some time without having to access her Super yet and without diminishing my Super Fund Balance to any great extent. I thought everyone's Super was the same, the first $180,000.00 drawn on is tax free. My safe option Super investments return above 7%, which is all I need to sustain a good lifestyle, my International Shares provide the gravy and my Australian shares make life interesting.
I really don't understand your comment.
I do agree with you about banks though, one should avoid them at all cost, as they will surely rip you off if they get the chance.
Old Geezer
15th Nov 2017
11:52am
All my draw downs on super are tax free since I am over 60. However I only have about 10% of my wealth in super. The returns on the other 90% I have to pay tax on the balance over my threshold. Therefore if I have money deposited in a bank it is a high risk investment as it costs me money after tax and inflation to have it there.

And who would give me the advice I need as you suggest? I can't think of anyone that would understand my circumstances let alone know how to advise me.
ex PS
15th Nov 2017
2:30pm
Are you in a position whereby you don't make enough money on your investments to cover tax, inflation and your living costs?
Because as I suggested, that is the situation where you would need help on managing your finances.
I have most of my money in Super and have the ability to manage that money within the system to make the most of it, if I want it in a high risk area i can do that, if I want a low risk environment i can choose that option. I also have money in the free market place which gives me about the same returns as the Super account, I pay tax on none of it and it is all declared to the Taxation Department every year.
Tell me, what is this threshold you speak of?
Old Geezer
15th Nov 2017
5:11pm
Make more than enough to cover tax, inflation and living expenses etc so no need to make anyone rich giving me help or hindrance to manage my finances.

Only the earnings on $1.6 million in one's super fund are now tax free with rest taxed at 15%.

There are thresholds above which one pays tax each year. It's $20,542 for those under pension age and $32,279 if you are over pension age. There is also a combined one for couples of $57,948.

I have a goal to spend it all before I die.
*Imagine*
16th Nov 2017
9:26am
ex PS, I too am an ex PS and I paid 6% then 9% of my wages into a State Superfund. Some periods were post tax contributions too. Because the fund itself was an untaxed scheme, bit like a ponzi scheme for Govt., I pay tax and medicare levy on my super stream (indexed for life) as if the income was an ordinary salary. The result is that even though I am over seventy, retired and only living on my investments, I do indeed pay tax. Indeed my part UK pension is also taxed and the ATO do quite nicely from my income which is less than $50 000 per year. The whole retirement income system in this country is a mish - mash of inequitable, basically unfathomable, patch work of rules that need a total review. I imagine that it won't happen until the major parties are dumped though.


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