Volatility Rules
It’s pretty hard not to notice that the markets have been yo-yoing for some time now, and needless to say super fund members have had a rough ride.
It seems though that this burningpants‘ correspondent’s super fund thinks members have been hiding under a rock – either that, or for whatever reason it’s taken them 12 months longer than it should have to decide to communicate what all this volatility actually means for superannuation.
Last week, said super fund (which will remain unnamed) sent an email communication to members about ‘Investing when markets are volatile’.
The fact sheet aimed to provide some comfort to members around what’s causing the volatility, why it’s important not to panic (or spend all day every day watching the stockmarket) and how diversified portfolios can help reduce risk and market exposure – and in all fairness, it did a pretty good job.
But the problem is; it came 12 months too late.
It shouldn’t take the US coming to the brink of bankruptcy, a debt crisis in Europe and a week in which the benchmark S&P/ASX 200 fell 5.5% to a two-year low of 3765.9 before bouncing back to close up 1.2% at 4034.8 to get a bit of love from your super fund.
The chart below demonstrates just how rocky the past three years have been in super.
The average then 68-year old retiree who invested $170,000 in a balanced fund in 2000 has been on an epic rollercoaster ride, with the portfolio growing to a high of $470,402 at the end of 2007 before losing more than 30% to settle at a meager $326,527 10 years later.
That’s a loss of $143,875 – fairly significant for the majority of Australians.
Yes, the Australian economy is strong and yes, it’s in a lot better shape than most global counterparts, but this doesn’t mean that the average super fund members isn’t worried – particularly those at or approaching retirement.
If super funds truly want to engage members, it’s going to take more than one-off communications in volatile times.
4 Comments on “Volatility Rules”
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Chris Caton says:
Well there’s no way that a 68-year-old should have had all of his money in equities! And can I just point out that it’s not super that’s been volatile here but the share market. It’s an all-too-common mistake to think of super as an asset class, when it is in fact a (legal) tax-minimisation vehicle.
burningpants says:
Thanks for your comments – we’re certainly not suggesting the need for a crystal ball. What we’re saying is that members’ funds have taken a substantial knock in the past few years, so the calming communications were too little, too late. There’s no question that the 68 year old still comes out on top having invested in super.
Chris, the chart is based on the ASX200 accumulation index, with diversification across asset classes. Agree that a balanced fund with cash, fixed income etc would counter the capital losses in the ASX200 and hence perform better.
Mathlete says:
How do you figure the super fund member has lost 30%?
Hasn’t the 68 year old super fund member seen a return of 92% over 10 years? Or are you suggesting the super fund (and its underlying fund managers) should have been able to pick the exact moment the market had peaked and informed its members of such? If so, it’s a ridiculous expectation.
Chris Caton says:
Am I missing something? This poor old codger hs lost more than 30% since the very peak in late-2007. My balanced fund is down by about 13.6% in that same period.