25th Oct 2018
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Why your super is now worth thousands of dollars less
Author: Olga Galacho
stock market slides

Millions of dollars have been shaved from superannuation accounts this month as shares continued a freefall that began at the start of September.

Balanced super funds invest heavily in shares, so any slide in their value means pension nest eggs also lose value.

The ABC reported this morning that when Australian shares began trading today, they lost all of the gains made this year as our market mimicked massive losses on Wall St overnight.  

At the start of September, the stock exchange’s barometer, the ASX-200 index, was hovering around 6350 points. At the start of this month the index was about 6170 points. Yesterday, it slipped down below 5800 points at least twice during trading.

For an average super account, the sell-off is equal to the cost of a short holiday at a cheap overseas destination.

The falling values are affecting both Australian and international shares, with geo-political  fears largely to blame.

In particular, investors have become nervous about the potential for a rift to grow between the US and Saudi Arabia over the disappearance of a US-based Saudi journalist in Turkey last week.

Agency SuperRatings estimates that in October, the median balanced fund will have fallen by around 2.4 per cent.

“This means that if you have a super balance of $100,000, from 1 October to 19 October your nest egg would have reduced in value by $2400,” SuperRatings executive director Kirby Rappell told YourLifeChoices.

“If you were invested 90 per cent in Australian and international shares the impact would have been a decrease in value of about $4000.”

Add those figures to the thousands lost during September’s stockmarket tumbles and one could be excused for worrying about their pension savings.

But Mr Rappell said people should not panic …

“When there is a market drop, the balance of your superannuation can fall; however, it isn’t expected to affect most members directly as they cannot access their super,” he said.

“Although it is more challenging for those members nearing or in retirement.”

He said: “Those years away from retiring should take comfort in the fact that the median balanced fund generated a return of 9.7 per cent over the year to 30 September 2018, and 7.2 per cent over the 10 years to 30 September 2018.

“For most members, it is important to keep a long-term view as volatility is unavoidable.

“Timing markets is a fraught exercise and one to be extremely cautious of.

“We do not believe that recent selling will translate into a bear market for shares, but it certainly presents a clear message to super funds and other investment managers to be wary of holding too much risk.

“The market pullback is another timely reminder to members that good times should not be taken for granted.

“These sort of market moves will inevitably impact superannuation account balances in the short term.

“The challenge for super funds in this environment will be to maintain discipline and stick to their long-term investment strategy,” he said.

Yet the fact remains that, according to SuperRatings’ own calculations, the median balanced option went into negative territory in September, returning -0.1 per cent, and will likely do so also October if investors keep selling off their stocks.

Are you nearing retirement and concerned about the fall in the value of your superannuation? Is your super invested in a balanced portfolio?

How does your Super affect your overall retirement income? The RetirePlanner™ tool has all the information you need.

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    COMMENTS

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    Cowboy Jim
    25th Oct 2018
    11:02am
    Went through all of that 10 years ago, lost about $150'000 in super during the GFC and then waited for the improvement and when the loss was manageable took the lot out as I was over 60 then. Do not much interest but obviously get a higher part pension now and I sleep well at night these days, 10 years ago our nights were full of bad dreams.
    Fraser, PM, might have been right about putting your savings under the bed. We now just wait for the property market to fall apart.
    Bruce
    25th Oct 2018
    11:13am
    So far. My loss is stilll less than my gain. Watching and waiting. But crashes usually occur in a year ending in 8 or 9.
    KSS
    25th Oct 2018
    12:19pm
    And frequently in October!
    Rae
    25th Oct 2018
    1:13pm
    Take your profits when you can and you have no worries. Not taking profits and rebalancing is a common mistake.
    Cowboy Jim
    25th Oct 2018
    3:47pm
    Taking my profits and I keep on spending Rae - Sunday I am off to Tahiti for 2 weeks;
    cannot take it with you.
    Rae
    25th Oct 2018
    5:00pm
    Enjoy Cowboy. Gorgeous place.
    Old Geezer
    26th Oct 2018
    9:59am
    February is the worse month but the biggest falls usually occur in October in practical in the second half of October.
    Cruiser
    25th Oct 2018
    11:20am
    Hopefully most people have taken advice from the many experts who have been recommending 2 to 3 years living expenses in cash in the event of such a correction. Time to switch all withdrawals to this cash balance and await the claw back of equities.
    Anonymous
    30th Oct 2018
    7:02am
    That's good advice, Cruiser, but the government makes it impossible for some people to take it. Holding cash is expensive, and if you are deprived of pension income because you have assets, what choice do you have if your returns don't cover essential living expenses? This is why the assets test is so EVIL and economically destructive. It unfairly targets those who can't achieve high returns - more likely the more educationally disadvantaged and those who have suffered crisis that makes them very risk averse. It's fine for the privileged, but it has really screwed up the lives of battlers who sacrificed extensively to accumulate a little nest egg.
    Old Geezer
    25th Oct 2018
    11:34am
    Love it! Time to look for some bargains.
    KSS
    25th Oct 2018
    12:22pm
    Which is the best reason to keep some savings in cash. To take advantage of good stocks when prices are low. A bit like specials at the supermarket; down this week back to normal trading next!
    Old Geezer
    25th Oct 2018
    12:34pm
    Yes I sold one the other day when was up 200% on the day. I bought it back today and it is already up 30% from when I bought it this morning.

    Got a list of stocks I would like to buy at certain prices so just waiting patiently.
    Rae
    25th Oct 2018
    1:15pm
    Yes OG watching and waiting and having a bit of an idea of fair value pays off.
    Old Geezer
    25th Oct 2018
    1:24pm
    It certainly does.
    Rae
    25th Oct 2018
    2:14pm
    The DOW bounced back hard last night as well. I find this sort of after the event reporting a tad off putting and they never talk Bonds. So many with fixed interest they assume is safe and nobody talking about it.
    Old Man
    25th Oct 2018
    11:56am
    Do we really need articles like this that may scare people who have a limited knowledge of how their funds in super are invested? If the full article is read, it is contradictory in that it advises that there may be a fall in value but the fall should self correct over time. The article is heavy on theory and light on facts.
    casey
    25th Oct 2018
    12:01pm
    I agree. It might go down but eventually comes back
    Anonymous
    25th Oct 2018
    2:57pm
    But if you need income and can't wait until it comes back, you are stuffed. And that's the situation for many retirees, sadly.
    Rae
    25th Oct 2018
    5:03pm
    Retirees are advised to keep a couple of years cash for these events Rainey. Always good advice. Markets always correct when they have been running hot on cheap money and then interest rates rise. And I mean liquid cash not exotic products pretending to be cash.
    Old Geezer
    26th Oct 2018
    10:02am
    I currently hold a lot more cash than I normally do as I sell into rising markets and then buy when prices fall and reach the prices I like to buy them back at.
    Anonymous
    30th Oct 2018
    7:04am
    Rae, holding cash is expensive. When your assets effectively cost you more than 7.8% in pension loss, and your returns don't anywhere near cover your essential living costs, how much can you afford to hold at 2.5%?
    ex PS
    31st Oct 2018
    12:16pm
    Money is generally lost through panic, never sell at a loss if you can afford to hang on.
    Jim
    25th Oct 2018
    12:09pm
    Shares might be slipping a bit, during the GFC the all ords dropped to 4500, they are now above 5800, so situation not that bad. I am not a major player in the stock market, preferring to keep my money in cash investments, what I do find annoying is the deeming rate which I think is about 3.75% is way above what is available in safer type investments, banks used to offer a deeming account that was about .5% below the government deeming rates, it seems as though these type of accounts are no longer available, I guess we just have to accept it or invest in riskier options.
    Old Geezer
    25th Oct 2018
    12:35pm
    The deeming rate is worked out on what the average pensioner earns on his money.
    Cowboy Jim
    25th Oct 2018
    12:46pm
    Current deeming is 3.25% presently and still too high. Getting 2.3% for 6 months.
    Old Geezer
    25th Oct 2018
    12:48pm
    It is not based on what you can earn on term deposits at all. It is based on what the average pensioner gets on his investments. Many are earning a lot more than 3.25% and many a lot less.
    Jim
    25th Oct 2018
    4:14pm
    Not sure where you are getting your info from OG the deeming rate has nothing to do with the average that other people get, if the deeming rate is currently 3.25% it must have dropped recently, but I will take your word for it, I am currently getting 2.75% with the IMB I had to negotiate with them for that rate, I think CITI bank is, something to do with having another investment with them, the government sets the deeming rate low to encourage people to leave their investments in potentially high return investments, that way they can potentially pay less out in pensions.
    Old Geezer
    25th Oct 2018
    4:20pm
    It is not based on cash type investments but all investments. Centrelink believe a person should not leave their money invested in cash as that is lazy investing. If cash was 15% and equities 5% the deeming rate may only be 8%.
    Jim
    25th Oct 2018
    5:03pm
    Don’t know what happened to part of my response, CITI bank had an offer of 3.0% and another for 3.8% the latter had conditions attached to it regarding other investment options. Cash rates are definitely the worst returns, but the principal is safe and guaranteed by the government, I pulled my money out of super because the charges were getting too high, I do keep a small share portfolio that I am prepared to take risks with, and that will depend on what happens at the next election as to whether I keep it, I know it’s not smart but I can sleep soundly and am prepared to take the hit, after all who will benefit if I have a huge bank balance after I have gone?
    Anonymous
    25th Oct 2018
    5:13pm
    Actually, Jim, it's NOT government guaranteed at all. An economist explained the 'guarantee' to me recently and I was shocked - almost to disbelief! It really isn't worth anything. It's just a placebo to make people feel safe.
    Jim
    25th Oct 2018
    6:07pm
    I have clarified with my bank that the principal is guaranteed, of course the interest is not guaranteed, and the guarantee is only on the first $250,000, that’s the latest I am aware of, did the economist give you a reason or conditions that might apply to void the guarantee, I would be interested to find out any information.
    Greg
    25th Oct 2018
    6:25pm
    Jim - It's government guaranteed up to $250,000, ignore the others and their crap. Even if it wasn't guaranteed it's far, far safer then being in stocks where you're the last to get paid out when the company goes belly up or the market tanks. When you're getting on in age you may not have the time to wait out the market returning in your favour.
    Old Geezer
    26th Oct 2018
    10:04am
    OGR I agree with you about Government Guarantees.

    I have my cash spread among about half a dozen banks.
    Anonymous
    30th Oct 2018
    7:07am
    I suspect the devil is in the fine print, Jim and Greg. According to my friend, the fine print says the guarantee only applies if the bank goes out of business. He could be wrong of course, but he seems to me to be very well informed and diligent in his research habits.

    Of course the bank will tell you otherwise, as will the government. The whole point of the guarantee was to give people false confidence. They are not going to destroy that by telling the truth about it's value.
    Rae
    25th Oct 2018
    1:10pm
    Actually my bond fund lost the most recently. International shares did well and I'm out of the ASX.
    Fixed Interest may be the Elephant in the portfolios perhaps.
    AussieTuca
    25th Oct 2018
    3:59pm
    When I retired 10 years ago, yes, right on top of that crash in 2008) I lost a few thousands dollars and panicked a bit. Ah well, my returns were so good with Unisuper...

    Then I decided go for Cash. Greedy is good, some times. Good sense prevails however.

    I played a bit with the market last few years, had ups and downs and moved back to Cash again where I have parked for the last 3 or 4 years.

    My point is, during all this "cash" times my super only increased, and still does, every month, around $300.00 meaning that I pay less for the fees and the monthly payment of my flexi pension. If we do not have a "coup d'état" and the government changes drastically (being from South America I know that anything can happen) the remaining super will keep me alive until I catch my final bus with a one way ticket.

    In these volatile times cash still is the safest option unless of course one is... Greedy!
    Old Geezer
    25th Oct 2018
    4:21pm
    Cash is actually the worst investment you can have. It rarely makes a return after tax and inflation but devalues each with each passing year.
    AussieTuca
    25th Oct 2018
    4:27pm
    Actually it is the best if you do not want loose money. Who wants to invest beyond the age of 70 if you have enough to live well?

    Greed!!!
    Rae
    25th Oct 2018
    5:14pm
    I enjoy it as a sort of hobby with benefits like helping the kids out and having fun holidays with family. I wouldn't call that greed.

    Besides I've been good enough at it I have to do it as the Government deems me unworthy of a pension or concessions.
    Old Geezer
    25th Oct 2018
    6:16pm
    Me to Rae.

    It is actually quite fun especially picking pennies from the charts.
    Greg
    25th Oct 2018
    6:18pm
    Exactly AussieTuca - we don't all have the assets like OG has to play around with the stock market, if he losers some it's no big deal to him. Us peasants have to rely on what we have and don't want to lose any of it.
    AussieTuca
    26th Oct 2018
    8:06am
    And furthermore, with so many problems we "elderly" have in hand why wast time and be worried with shares fluctuations and such? Unless of course one has millions invested and expect another few thousands millions in return. if this is the case these should not be even here discussing about pension and market.

    And then one goes and catch the last bus and everyone else gets the money so "hard" earned...
    Old Geezer
    26th Oct 2018
    10:12am
    The problem with cash and cash investments is that inflation devalues the purchasing power of your dollars. You may be Ok today with a million but what will a million buy in 25 to 30 years time?

    There is a graph in this article that shows the difference between holding cash and equities long term.

    https://www.motivatedmoney.com.au/mysay.php?iid=hfa91n9f8z
    Anonymous
    30th Oct 2018
    4:58pm
    And that's the problem with the stupid assets test that you support, OG. Those who have a million or less now and are not receiving adequate returns to add to their nest egg every year will still only have the same amount - or more likely much less - in 25 - 30 years. It's all very well to say a 90-year-old couple is wealthy with $850,000, but a 65-year-old couple is not nearly so well off with the same amount.
    Old Geezer
    25th Oct 2018
    5:58pm
    if you want to read a good report on how Labor's franking Credit policy will work go to

    https://www.aph.gov.au/Parliamentary_Business/Committees/House/Economics/FrankingCredits/Submissions

    and download submission Sub222 by Ms Laraine Graham.
    Rae
    26th Oct 2018
    9:05am
    Thanks Og. Some very good arguments and foresights.

    This is exactly why I was so adamant that the breaking of the No Disadvantage rule back in Hockey's budget was very very bad. All types of disadvantage can now be legislated and regulatory capture run havoc through our society and economy.

    At least in this case there are means of escaping the consequences individually. Not so for those locked into annuities and pensions back in 2014 unfortunately. They are stuck with no recourse.

    Discriminating against small groups of people in this way( SMSF franking credits) is despicable. Of course we know the FIRE Industry would prefer to have access to those billions and that both LNP and ALP choose to support anyone but the Australian people.
    Old Geezer
    26th Oct 2018
    9:58am
    Rae I see this as a way of getting rid of SMSFs so they can get access to all our super money by legislating where it is to be invested or even worse nationalising it.
    Rae
    26th Oct 2018
    10:58am
    A very good reason to hold investments in your own name outside the superannuation system.

    But yes SMSF annoy them as they can't get at all that money.
    Anonymous
    30th Oct 2018
    6:59am
    Pity all the morons supporting the change because ''rich people should pay tax, and Shorten said it only hits rich people'' don't have the intelligence to read articles like this and pay attention to FACT.
    Anonymous
    30th Oct 2018
    7:23am
    The submission from GEM Capital (no 229) refers to the costs of investor response to a policy change and claims this has not been factored into the costings that currently claim substantial budget savings (potentially very inaccurately).

    I have a letter from the LNP's Treasury Dept in response to comments about the cost of response to the changed assets test. The letter states that in assessing the budget outcomes of a proposed policy or policy change, NO consideration is given to the potential economic effect of reactions because this would require consideration of the likely psychological impact of the policy and the Treasury does not have the resources to consider psychological factors. It only ever looks at the DIRECT savings and costs.

    That evidences total incompetence, because the psychological response is absolutely critical to determining the cost or savings from a policy change. If the response is harmful to the economy or cancels out the savings, then the policy cannot be claimed to be beneficial. Yet Labor is happy to claim billions in savings, in total ignorance of the fact that the costs are very likely to far exceed any possibly savings. Not only will the response cancel out much of the claimed saving, but it will likely impose losses in other areas that far exceed even the most optimistically-claimed gains.
    old frt
    26th Oct 2018
    12:13am
    A very true and great submission OG.
    Just goes to show what little thought those two d1ckheads Shorten and Bowen put into their policies . Also wait till the effects of their negative gearing policy puts the housing market into freefall ,when people try to downsize and there are no buyers .
    Old Geezer
    26th Oct 2018
    9:56am
    I agree. I thought it was worth sharing and it is worth reading for those who want a good understanding of how it works.

    It was not my submission.

    Regarding negative gearing. As an investor most of the gains from investing in property are made when one sells. So even if negative gearing is available on new properties then investors will not compete with home owners to buy them if they can't make money on them when they sell. It will be a limited market to sell into with very few or any investors wanting them. Rising interest rates and the cutting of tax free capital gains (ie pay tax on 75% of capital gains) will also have a big effect on investors buying new dwellings.
    Rae
    26th Oct 2018
    11:01am
    Let's remember a lot of the new dwellings are out in the suburbs where not many want to live or are apartments of dubious quality, unknown building risks and corporate body etc costs. With yields as low as they are now you'd be crazy to buy for rental or even a new build to live in. Too risky.
    MacI
    26th Oct 2018
    12:38pm
    At least this article puts forward a balanced perspective rather than some of the fear mongering articles that have been published on this forum in the past in response to a slump in the share market.

    Losses are only notional until assets are liquidated into cash. Rather than panic it's best to take a long term view and ride the wave. Most Super funds offer a conservative option for members who can't sleep at night for fear of the inevitable slump in the stock market. My fund's conservative option is comprised of 70% defensive assets that mitigate against falls in the share market (cash, bonds, etc) and 30% growth assets (shares, property, etc) and has returned an average of 6.7% over 10 years. The cash option offered by the fund over 10 years returned an average of 3.7%. I've been tracking my fund's performance for 14 years and the only negative return for the conservative option was 2008 at -4.9%.

    Having all of your money in cash is fine as an investment if you have plenty because you don't have to worry about it running out before you die but for many, if not most, people the risk of holding everything in cash is that it won't last.
    Old Geezer
    26th Oct 2018
    1:07pm
    There is a graph in this article that shows the difference between holding cash and shares long term.

    https://www.motivatedmoney.com.au/mysay.php?iid=hfa91n9f8z


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