Riding out the super storm

Bruce Brammall, The West Australian, 20 June, 2022

“Nowhere to run. Nowhere to hide.” You can already write the epitaph on super’s grave this financial year.

All fund members are limping to the finish line. Some might need wheelchairs.

It’s been brutal. Investors are bleeding, battered by a year in which all asset classes scored a fail.

If you haven’t looked at your super in recent months, my tip is … don’t. If you have been looking at it recently and getting a bit punchy, stop doing that!

The only “safe” place to have had your money this year is cash. But with cash returning effectively zero (until very recently), and inflation running north of 5 per cent, even that’s hit reverse thrust.

Don’t panic. Even if you think you’re watching thunderclouds raining on your impending retirement, I’m going to try to light you up a rainbow.

And this time last year? We were celebrating as super thundered it’s best year since becoming compulsory in the early 90s. Keep that in mind.

Been here before?

Bizarrely – and possibly uniquely – it actually doesn’t matter whether you’ve been a conservative, balanced or aggressive investor this year. Everyone has been smashed pretty equally.

Conservative investors have most of their funds sitting in cash and fixed interest. Bond markets have been pummelled down the escalator because of the threat of rising interest rates.

More aggressive investors have most of their money sitting in shares and property. They’ve had a roller coaster, but as it stands today, their performance is down in eerily similar degrees.

(And, as above, cash has been going backwards in real terms also.)

If you take a standardised comparison set – such as an index manager – conservative investors are sitting on returns of about -10.5 per cent. Balanced investors are down about -9.9 per cent. And aggressive investors are down -9.1 per cent.

That’s not necessarily how your super fund will have performed. On average, it will probably be a bit worse than that. My comparison is a low-cost index fund. Your super, whether at an industry or retail fund – will have higher fees. So you can probably wipe another 0.5 to 1 per cent off those figures.

Nowhere to hide.

Raindrops keep fallin’

And it gets worse, if you change your reference date. If you start counting from December last year, the figures are down a further 2-4 per cent.

Those who will be feeling the pain most acutely are those just in, or just arriving at, retirement.

Watching investments you had planned to live off in retirement for 20 or 30 years slide by 10-plus per cent will be making some sick to their stomachs.

It’s called “recency bias”. What’s happened recently will impact your current mood/feelings the most. Completely understandable. I can barely remember some of Jerome’s hurtful 5th grade bullying. But the pain my DebtBoy made me feel last night is gnawing at me.

The rainbow cometh eventually

I’ll never forget the dark days around March 23, 2020, so long as I live. The Corona-crash in markets, combined with a deadly new disease spreading around the planet, was about as scary a time as I’ll witness in my lifetime.

But things came good. They always do, eventually. Markets recover. They’ve never not. (Except Japan … still below it’s ridiculous 1989 peak.)

If you’re approaching, or just hit, retirement, keep your cool.

Your super, even when you turn it into a pension fund and you start to draw income, is designed to be invested and to last you for up to another 20 or 30 years or so. (That obviously depends on how much love you’ve shown it.)

That’s still an ultra-long-term investment time frame. You’ve got several more cycles, up and down, left in your super investments yet. If you stay invested.

The assets that your super is invested in won’t change dramatically. You’re most likely predominantly invested in the world’s largest businesses, diversified property holdings and fixed interest and bonds.

They’re currently just discounted. A bit. And, sure, the discount could get a little bigger in the months to come.

But, medium to long term, being invested in shares and property is likely to deliver a better result than being in cash.

Now hurts. I get it. But the solution is rarely to panic. Rainbows are coming.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.

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