Could the COVID-19 coronavirus hit your superannuation?

‘Barefoot Investor’ Scott Pape says there’s no need to panic about your retirement savings.

coronavirus render on stock market board

International share markets have been on a roller-coaster since the COVID-19 coronavirus hit headlines, recording both dizzying highs and lows.

Super funds have reported an increase in members contacting them and wanting to know if their retirement savings are safe.

So, what should you do with your super as the market fluctuates?

In most cases, nothing.

No need to panic
It’d be easy to be alarmed about the impact the public health crisis is having on the share market and, by extension, your retirement savings.

The consensus from experts, however, is that now is not the time to make major changes to your super.

Scott Pape, author of The Barefoot Investor books, says that trying to move your super around to counter the impact of the coronavirus is a bad idea.

“Do I think that people know how the coronavirus will play out? The answer is unequivocally no,” he explains.

“I wouldn’t be looking to financial experts to tell me what’s going to happen next.

“If you look at history, these tragedies impact people but they’re short-term health crises, not long-term financial crises. In the long term, we know the share market goes up.”

The share market has historically rebounded strongly after dips caused by other public health crises such as Ebola, SARS and swine flu.

Review your risk strategy
While nobody is encouraging super fund members to panic, it could be a good opportunity to review whether the risk level of your super is right for you.

The accepted wisdom is that younger people can have their super invested with a more high risk/high return strategy (including more exposure to shares) when retirement is some way off and they’re still accumulating retirement savings.

For people who’ve already built up their retirement savings, a more conservative approach (with less exposure to shares) might make more sense. You don’t want to be the person exiting the market just after a crash.

“Should you be doing anything with your super? Yes,” says Pape. “But should it be in reaction to the coronavirus? No, it should be about making sure you have the appropriate risk for your age and your risk tolerance.”

He suggests people approaching retirement build up a ‘cash buffer’ to keep some of their nest egg out of the ups and downs of the market.

Many super funds also give you the ability to reallocate where your super is invested through their online platforms. This can include allocating some of your super (or just new contributions from your employer) into a conservative option like cash, if you’re looking for a low risk/low return strategy to protect your savings.

A financial planner can also help you with the risk profile of your super if you’re unsure – see our guide on how to find a good financial adviser.

For people who aren’t approaching retirement, a market downturn such as this one can actually be good for their nest egg in the long run.

“Anyone under the age of 40 should be cheering the market going down,” says Pape. “The stock market’s on sale and we know the stock market always goes higher.”

Focus on the fundamentals, such as fees
Pape suggests ignoring the urge to try to ride the waves of the market. Instead, he says you should ensure you’re not paying too much in fees. “They’re one thing you can control,” he says.

The Productivity Commission previously highlighted the impact high fees can have on your retirement savings. A seemingly minor increase in fees of 0.5 percentage points can cost a typical full-time worker a staggering $100,000.

As a rule of thumb, you should look for total fees of one per cent or under for your super. This will have a major impact on how much you end up with in retirement, coronavirus or not.

This article first appeared on CHOICE.

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    COMMENTS

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    leek
    10th Mar 2020
    10:18am
    Fiddlesticks to that. I lost heaps 10 years ago, and yes it did come back but took much longer than the so called experts said it would. I am way to close to retiring and have a a lot more to lose this time. I moved a large portion out ot cash over 2 weeks ago, I lost $13k before the move as well. Happy to move it back when the markets start to rebound. But I have to do what is right for me.
    Sceptic
    10th Mar 2020
    12:13pm
    Fiddlesticks to you. Itis exactly what Scott is saying. Review what is right for you, and if you are in or close to retirement phase your strategy should be to have a bigger cash buffer in proportion to risk investments.
    Mariner
    10th Mar 2020
    12:41pm
    leek - now how you feel. Retired just before the GFC and lost heaps, have nothing in Super now, so welcome a pension increase.
    Janus
    10th Mar 2020
    10:22am
    I pay my financial adviser more than 1%. However, I make about 10% on my investments, based on her advice. Sounds like a good deal.

    Her advice to me now runs along the lines of "you have lived through many declines, the GFC, SARS, MERS, Swine flu, and Tony Abbott, so it will pass - just don't look at your portfolio on anything more than a monthly basis."
    It is so interesting and good fun watching people panic: when in doubt, scream and shout, run around in circles...and stock up on unnecessary items.
    sanity
    10th Mar 2020
    11:18am
    Love Scotty! He has limited idea when it comes to "retired" people. And, why should he.
    This is supposed to be a "retirement" newsletter.
    What happens when retirees have most/all of their assets to fund retirement in cash?
    What happens when retirees have most/all of their assets in the share market - getting a 6-9% return is far better than 1% in fixed deposit?
    What happens when, as many older people do, panic?
    What happens if dividends are cut by public company's renowned for paying regular dividends?
    At what point do retired people say - how do I get my assets to a level to where I can draw an aged pension?
    There are many options within this environment - most not covered by Scott (or anybody else really). It's too hard!
    Being committed to being self funded is bloody hard work! Isn't it?
    Sceptic
    10th Mar 2020
    12:20pm
    You obviously were not a subscriber to Scott's advice as he does cover those who are near to and in retirement phase. Unfortunately, now is not the time to be making any decisions about how much of your assets to keep in cash and how much to keep in risk investments. that is a decision that should be made and reviewed regularly.
    sanity
    10th Mar 2020
    11:18am
    Love Scotty! He has limited idea when it comes to "retired" people. And, why should he.
    This is supposed to be a "retirement" newsletter.
    What happens when retirees have most/all of their assets to fund retirement in cash?
    What happens when retirees have most/all of their assets in the share market - getting a 6-9% return is far better than 1% in fixed deposit?
    What happens when, as many older people do, panic?
    What happens if dividends are cut by public company's renowned for paying regular dividends?
    At what point do retired people say - how do I get my assets to a level to where I can draw an aged pension?
    There are many options within this environment - most not covered by Scott (or anybody else really). It's too hard!
    Being committed to being self funded is bloody hard work! Isn't it?
    Hobbit
    10th Mar 2020
    12:13pm
    The Oil Price War between Russia and Saudi Arabia is the real driver behind the stock market drop. Oil prices have dropped from $50 to $32 a barrel.
    Incognito
    10th Mar 2020
    1:31pm
    Let's hope the trickle down effect occurs and we get savings on fuel which could in turn stimulate the economy as some people could travel more.
    KSS
    10th Mar 2020
    1:50pm
    Petrol prices are aat $1.20 where I live and tipped to go lower over the next few days. Great if you can travel now.

    Otherwise will there be a run on jerry cans to store fuel for future use?
    Eddy
    10th Mar 2020
    1:26pm
    Why the panic, I checked my wife's super last night and sure she has lost thousands in the last few weeks but it is still worth more than it was on 1 November 2019. Sure it has dropped 2.5% since January 1 but since 1 January 2019 her super has increased by nearly 13.5%. Where else would I get a return like that for zero effort, including the fact she has made no contributions since she retired in 2018, it is all investment return. No I agree with the article, there is no need to do anything.
    KSS
    10th Mar 2020
    1:57pm
    I agree. I didn't hear too many complaints when shares hit record highs almost daily over the last couple of months!
    Baby Huey
    10th Mar 2020
    1:40pm
    Have been looking for an advisor for several years that is not conflicted to a platform and is qualified and capable of giving proper independent advice on a consultative basis. So far no luck. Even my SMSF accountant advised if I could find a truly independent advisor let him know as he did know of any.
    In the last year I have very specifically breifed two so called advisers, one even using "Independent" in their practice name, for the construction of a portfolio that provide retirement income while maintaining capital. Both ignored my brief and tried to sell me advice putting all my funds into various platforms with various fees saying I will be very confortable and wealthy in 15-20 years time. In 15 years time, if I survive, I will be into my 90s not giving a rats arse about being wealthy only about being comfortable. My reply is not printable.
    After dicussing possible downturns affecting capital invested one advisor asked what would I do if a downturn wiped out 20% of invested capital. Again, my response was not printable. The meeting ended I asked the advisor what actions he would take to recover the capital and how long to which he did not have a reply.
    I would be happy to pay an independent advisor upto 1% fees for a consistant net on capital of 10% pa.
    aussiecarer
    10th Mar 2020
    6:12pm
    Pensioners who have taken their super as cash and put it in savings accounts are in for a rough ride if the $10K cash ban gets passed according to Sky News, Here's the gist of what others in the know are predicting is going to happen.

    The legislation that they are trying to get through proposes punishing people who pay for things in cash (more than $10,000) by threatening them with jail terms - even though cash is legal tender in Australia. While the surface reason for the legislation is to address the black market, some analysts believe that the real reason for the legislation is to force people who have savings to spend their savings to stimulate the economy and avoid recession, because apparently the mega low interest rates are not working.
    Australia tends to do what the IMF tell us to do. The IMF are also proposing the following steps to make cash unfavourable - and the Reserve bank may implement these steps. One proposal is a serial number lottery plan - where all bank notes which end in that number become invalid without notice.
    Another step that the Reserve bank is likely to take is to penalize people with savings in the bank - they will receive negative interest. This is a deterrent to saving money in the bank. It forces people to buy things or buy gold. In other countries of the world like Japan and Sweden people are already earning negative interest rates. Customers pay 4% of their savings to keep their money in the bank - e.g. $2000 a year to maintain a bank account that has $50,000.
    They are also proposing to put an expiry date on notes - the note expires after two years so people will not be able to hoard notes.
    And some countries have banned cash because of the coronavirus crisis - yet shopping trolleys, seats in doctor's waiting rooms and plenty of other items are just as hazardous as cash.

    Sweden is one country that has virtually gone cashless already. Apparently every six months there is an invasive questionnaire about how people have spent their money. If people don't fill out the questionairre their account is frozen. Also recently the computers didn't work for two days, and people couldn't buy or sell, because they couldn't access their accounts and there was no cash to fall back on.

    Anyone interested can read more about it here.
    https://www.skynews.com.au/details/_6138259787001?fbclid=IwAR2MPW41tesm9idRdeiw8hz3vXfBWhxpzGaYwYGULVPmPsLtl6bAmdnUJ8U
    KSS
    10th Mar 2020
    8:12pm
    Which countries have banned cash because of COVID 19? The only advice I have seen to those handling cash is to wash hands afterwards. Just like everyone should be doing in any case.

    It will be so easy to get round what you allege the IMF proposes. The cash will not 'expire' if it is in the bank.

    The only issue with the legislation is that you won't be able to pay for that new car, or the extension or renovations to your home with cash of more than $9999. No problem there. You just make cash payments under the detectable amount over a few days or weeks!
    Mez
    11th Mar 2020
    6:47pm
    KSS, I seem to remember that there is a time limit for each $9999.00 transaction like 6 moths or a year.
    skinner
    10th Mar 2020
    8:21pm
    I started my SMSF with my wife, in 2003, a few months after receiving my redundancy package because the Super fund I'd invested in, a Colonial First State share fund, was losing money & changing me heaps for the privilege. I can lose money for free, so I changed to an SMSF! Now, no fees & the fund is doing well despite the recent turn-down!
    skinner
    10th Mar 2020
    8:21pm
    I started my SMSF with my wife, in 2003, a few months after receiving my redundancy package because the Super fund I'd invested in, a Colonial First State share fund, was losing money & changing me heaps for the privilege. I can lose money for free, so I changed to an SMSF! Now, no fees & the fund is doing well despite the recent turn-down!
    Blossom
    10th Mar 2020
    10:02pm
    If there was a vaccine for Coronavirus it would be no more risk than the flu according to medical professionals I and others have spoken to. There are thousands world wide who contact flu both nationally and overseas. In actual fact the flu because there is so many strains is more dangerous considering there is not vaccination available
    Sceptic
    11th Mar 2020
    2:28pm
    Oh dear, not only full of panic merchants, spreading false news as well
    rachelm1
    16th Mar 2020
    6:05pm
    I really thought what has been happening with the world and stock wasn’t going to affect but it did. Sometimes I feel all these binary options, bitcoin and cryptocurrency companies are scams, I lost a huge amount of money. Things have turned good for me, being that I was able to recover my investments thanks to Recovery Pro. You can mail me if you are interested in the means I used to get my money back. Rachelmillr4 {at} gmail dot com
    Daddio
    26th Mar 2020
    8:15pm
    I am in a unique time of my life where I could withdraw it totally, which is what I have done after losing 9% of total value... Finally, I am off the merry-go-round.
    Daddio
    26th Mar 2020
    8:15pm
    I am in a unique time of my life where I could withdraw it totally, which is what I have done after losing 9% of total value... Finally, I am off the merry-go-round.


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