I currently have a balanced index fund with HostPlus but am thinking of switching to either "capital stable" or "conservative" investment strategy to limit my exposure to international share markets. The fee difference is about 0.39% - 0.43% versus 0.02% but will definitely be worth it especially if the global economy takes a massive downturn in the near future.
Anybody else doing the same?
Changing Superannuation Investment Strategy due to Coronavirus?
Windows7forever on 26/02/2020 - 08:47
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I know Super is long term but wouldn't it be wise to change investment strategies just in case things get worse, and then revert back once things normalise?
You can never tell what the market will do - I did this a couple of years ago when everyone was shouting crash crash but its only gone up from there .. Ive reverted to different strategies but I did lose a considerable potential earning
It's probable you won't be able to pick the best time to switch back and so you will miss the gains when they come so you may very well achieve a lower return than if you had left your investment untouched.
That relies on perfect market timing, which is virtually impossible. What people typically do is sell at the worst possible time due to panic and then buy back in too late after the bounce has occurred.
I deal with financial advice disputes for a job. We've just copped it because one of our advisers was trying to do just this during volatile periods and the client ended up worse off to the tune of $60k, when compared with leaving the portfolio alone, which we now need to compensate them for.
If an expert can't get it right, then I don't hold out much hope for the average person.
Wow, I wouldn't have thought a client could do that, I assumed the financial advice would be subject to so many disclaimers and waivers to protect the advisers.
I'm not planning on retiring anytime soon. Risk it for the biscuit.
Bloody hell. This comment did not age well.
If the trend continues it may be half biscuit.
Dow Jones -7% for last two days
Who is the best Super fund ? Would love to know more about maximum my super for the future . Wouldn't it be better if possible to invest your super into a property?
That depends exactly how much you think growth is going to happen in both markets until you're able to retire. As much as there has been hype (and a lot of growth) in the property market in the last 15 years I'm not convinced about the long term growth - at some point, you're limited by people's income.
Also, diversification is generally good. Buying a single property (which is all most consider in their retirement savings) is potentially risky. There are property trusts and similar which allows you to spread these risks, but by general nature, we're more doubtful of others.
As to what the best super fund is, I'd generally recommend low-cost funds, which are generally industry funds. Although Vanguard is apparently coming into the super market in Australia soon - might be a good option.
You need a self managed fund to buy property in super and I've seen plenty of these strategies go wrong.
You need to consider capital gains tax when switching investment options.
I'm unsure how that works for investments with a self-managed super, but changing your investment strategy in your managed super fund shouldn't have any CGT repercussions.
Yes, it does but at a discounted rate.
10-15% depending if you held units more then 12months
Unlikely. CGT for most of these funds is paid by the fund and pooled across everyone rather than the individual investor.
Super funds pay the cgt through their unit prices generally pooled across everyone
Sorry, are you sure that changing investment options in super got taxed? Never knew that.
Can you please explain about this.
How old are you?
Unless you are retiring in the short term, I'd be considering switching out of balanced into high growth.
You need to look through this. Markets love excuses for a sell off. There is no doubt going to be short term economic impacts that translate directly to trade, profits and share market valuations.
The market may continue to trend down for some time, but will (all else being equal) turn around when China and the world gets back to business.
The problem you have is will that happen next week, next month, in 3 months' time, or in a year's time?
Will the turnaround happen after the market has lost 5%, or 10%, or 15%, or 20%?
If you are a long term investor (which in superannuation basically means you're younger than about 50), the best course of action is usually to sit tight on your strategy and ride it out … unless, of course, you are able to answer the above questions accurately!
Better to switch gears now and change investment strategies. As soon as the doom and gloom disappears from the market and things go back to normal, simply change back to the old strategy. Seems like a no-brainer if you ask me. I called Hostplus and confirmed that there is no switching fee and you can change the investment mix as often as you like. The only difference is the management fees differ slightly depending on the option selected.
That's fine … it sounds like you have informed yourself on what's necessary to make the change. The whole design of contemporary superannuation is to put the investor in charge.
Just be careful that (1) you don't change gears, just at the time the market changes gears (in opposition to you), and (2) you know when the right time is to change back so you don't miss out on upside when it comes.
Person A and Person B are the same age, and are currently buying a big basket of products at regular intervals; and stockpiling them to resell in 20 years time when they retire. The price of the basket at the moment is pretty high. It seems likely there is going to be a short term downturn; and products in the basket will go on sale for a while – maybe half price, maybe even cheaper than that.
Who makes the better choice?
A - Sells all of their products while the price is high. Stick their money in a place where it does not fall, does not grow. Waits 3 years when the downturn is over and re-buys the products when the price is high again. Their position has not changed much overall in 3 years. They feel good about that, because they read in the paper about Person C who is 20 years older, and had reached retirement age during the downturn and had to sell their products when the price was low.
B – Keeps all of their products and continued to purchase more whilst the price is temporarily really low. It made him a bit nervous that his stockpile is worth less on paper, but he’s not going to sell for 20 years, so he powers through his nervousness, stockpiles heaps and heaps of products because he can buy at a discount. In 3 years time he has way more products than Person A. It was a bit nerve-racking but doesn’t matter now, he has way more products stockpiled than Person A, and they have gone back up to the same price as before.
A might feel good, it might feel like he is making a "safe" choice, but B ends up way better off. The really sad thing is person A might never realise how much money they have lost due to this behaviour.
Does this really apply to super that's invested in index funds though?
I take your point when it comes to "active" investors.
@AncientWisdom: I would think your strategy is dependent on your investment timeframe not if the index fund (or other ETF or similar investment) is held by an individual or super fund - the investment is not going to be more or less affected by the downturn because of who owns it.
If you want to sell in the next 5 years, adjust your strategy to compensate for short term factors.
If you don't, stick to the plan you had for the long term. Timing the market correctly is unlikely particularly if you are impacted by emotional factors like nerves about 'doom and gloom'
'Seems like a no-brainer'
that's the worry - I've read that the sharemarket is a mechanism for transferring wealth from the impatient to the patient
the classic price curve is professionals buy at the bottom of the market - mums and dads wait to be sure - the market rises and rises - still not sure - finally the market takes off and rises like a rocket - mums and dads finally confident and buy in - just before the market crash
market falls - mums and dads worry but hang on hoping it will rise again - it continues to fall - mums and dads worry but hang on afraid - finally prices bottom out and depression sets in - mums and dads desolate sell out having lost everything - just before the market rises
who buys when they're selling ? the professionals !
Super is meant to remain pretty light touch precisely for this reason. You shouldn't panic due to circumstances like this. A classic example would be selling out of your growth options when they crash (sell low) and buying back in once the correction is over (buy high). You end up worse off anyway.
Over the length of your super investments, this will probably be one of many corrections.
Depending on your age, as above, most young people have the time horizon and risk appetite to be in a high growth option. But that is your choice.
I would recommend reading up on /r/AusFinance for general advice. None of the above should be taken as advice specific to your situation etc etc.
IF your not retiring soon buying an index that is cheaper could in the long run be a benefit. This could be a good market correction allowing you to 'buy more'. As all things perhaps you should seek good unbiased pay for fee financial advice before risking the trade, as all trades have a cost also which might negate any move. Or on the other hand do what you will and see what happens?
*you're
yore
If you are really concerned then just switch to cash/bonds
Step 1: Panic
Step 2: Sell everything
Step 3: Invest in non perishable food.
Step 4: Profit!Yep. Or buy gold.
Hahahahhahaahahhahhahahah buy gold. May as well believe in chemtrails
invest in mask!
lentils, pasta and firesticks
BUY WHEN GLOOM. now the time to switch into more aggressive ….
True, provided that the stock market will keep going down?
Look at how past stock market shocks have affected the "Balanced" fund previously. Often the balanced funds will already have some risk aversion baked into them to minimise the up-and-down volatility. I was looking at previous performance of my super funds Balanced option. One example where the overall stock market returns were -30%, the balanced fund impact was around -10% in the same year. A conservative fund may have been say -5%. So switching from Balanced to Conservative might not be as much as you think as the difference in losses between the funds might be smaller than you think.
He's on the Balanced INDEX not Balanced option. It's kinda like an ETF of ASX200
Pretty sure on my super (AustralianSuper) the balanced option out performed the aggressive option in the last 5-10 years overall.
Edit: not index.
Once again this is an INDEX not a fund split between multiple asset classes it's basically one class… Jeeze
If you switch now at a market low aren't you just locking in your losses?
I'm in the same boat with op. And after reading some comments, i may have the wrong understanding. I have switched to balance and stable 2 weeks ago since i kinda predicted the market downturn. My thoughts are switching to less aggressive (invest more in cash and fixed interest) will prevent losing values when stock market going down. Happy, if someone can educate me on this. Not a savvy investor (yet 😜). Thank you.
Read above about the supermarket analogy. OP's thinking is very backward overall unless there is time and age factors not displayed. Also, I cannot say this enough… he is in the balanced INDEX! Not the Balanced fund, two completely different boxes of frogs. He was basically in a broadbase ETF of 200 ASX stocks whereas the Balanced FUND has a mix of asset classes, including stable and fixed interest, property ect. The thinking is that when there is a market correction or downturn equities may become cheaper and therefore buy low and sell high is enacted. This is sell low buy high, it's backward. Once again though each to their own and should seek financial guidance, funnily enough you get one free pop through most super funds per year.
Yeah, I need to educate myself with index vs fund. Always think from fund pov. I'm with AusSuper and there's no word "Index" in their product so I assumed it's "balance fund" or "high growth fund". Thanks.
@Bargain-er: AusSuper have a single indexed option called Indexed Diversified:
https://www.australiansuper.com/investments/your-investment-…
How old are you?
Well in hindsight, I say 'well played'. Just make sure the same instinct kicks in for the recovery.
@Bargain-er . What data prompted you to make the change mid Feb?
I just changed my portfolio just before the BIG CRASH three days ago….
I'm ahead quite a bit, so will risk it back to my starting point… if it does not improve then I will consider safer havens.Watch the gold prices… they jumped but are receding back now. I think the virus is a bit of hype. 18,000 died last year in America with the common cold.
18000 within weeks or over a year?
18000 ants
@OzHunter - What was your 'barometer' for making the switch? Just the gold price?
Laughs in 2008. This ain't got nothing on a real crash.
A real crash MAY come. Whether you'd be able to predict it is a different question…
If you’ve got 7 or more years til retirement I wouldn’t. Besides, you’re just banking the losses now anyway if you do
i think that's only right if the stock market bounced? What about if it's a bear now? Many colleagues believe that we re in recession alr just not technical recession.
The barefoot invester answered a similar question in his column.
Cashing in on the Coronavirus
Hi Scott,
I’ve been watching (from afar!) the spread of the coronavirus, and I am worried that people are underestimating the long-term financial repercussions if it is not contained soon (and I don’t trust the Chinese government’s figures). Despite this, the Australian share market is up this year, but I am growing increasingly worried. In fact, I am thinking that, with the market now at record highs, it might be time to take some money off the table and wait for a correction before getting back in. What are your thoughts?
NickScott says:
G’day Nick,
First, let me lay my cards on the table:
I don’t know much about the coronavirus.
I don’t know whether it will become the next global pandemic that Bill Gates sagely once predicted “could come from China and infect up to 30 million people within six months”.
I don’t know if it will trigger a share market correction. Traders have already factored into their decisions that the ‘factory of the world’ is effectively shut, that our biggest source of tourists is not delivering at the moment, and that the bushfires have devastated major parts of Australia. Yet that’s all old news.
It’s what happens next that matters to the share market, and just in case you’re slow on the uptake, I DON’T KNOW ANYTHING.So, what do I know?
I know … that over the past couple of hundred years we’ve endured a lot of bad things: wars, recessions, depressions, pandemics — and through it all the stock market has never failed to hit new highs. Case in point: $1 invested in the share market in 1888 would have grown to $226,560 today.
I know … that it’s impossible to profitably trade in and out of the markets. That’s because if you decide to sell you have to be right twice: first when you sell and second when you eventually buy back in.
I know … that the bulk of your long-term returns will come from dividends, not share price movements. That’s why I focus on the income I receive four times a year and not the value of my portfolio.Oh, and I also know that I can’t catch the virus from drinking beer. Other people aren’t as sure: since January, Google searches for the phrase ‘Corona beer virus’ rocketed 2,300% globally.
Don’t drink and trade, Nick!
OMG the CORONAVIRUS !!!
death rate less than 2%
so if you GET it - OMG there's a 2% chance you might DIE !!!
errr that 2% is kind of misleading … i think you'll find a large proportion of that 2% are made up of the elderly and people with pre-existing conditions. So if your a healthy person and not an infant or retiree … your chances of kickin the bucket are gonna be much less than 2%. (and the flip side is that if you are, its gonna be much more than 2%)
Infants have had 00.00% death rate. A few-month infant healed from the virus last week.
The bolded part is good advice.
But:
Case in point: $1 invested in the share market in 1888 would have grown to $226,560 today.
Such a misleading figure because it doesn't take into account inflation.
Yes, your money will have grown, but by no where near as much as that figure suggests.
There is literally no point in investing in index funds with your super. Super completely defeats the purpose of index funds which is that it has low fees. Superannuation companies charge you a flat fee regardless which investments you have chosen.
That is not true at all.
Care to elaborate?
The fees for most vanguard index funds are very low around 0.30%, this low management fee is what makes index funds very competitive. But a super company will charge you a yearly fee for management and admin fee of around 1-3% depending on the company. This fee is charged regardless of what investment options you have chosen.
This isn't correct.
There are several different fees with super - some are flat (account keeping fee per month, etc) and some are entirely based on the type of investment you choose. From HostPlus:
Investment fee
Varies according
to your chosen
investment option(s),
ranges between 0.00%
and 0.86%I agree that Super and Index funds perform a similar function though. They minimise fees by pooling resources into simple, diversified products. Some super companies use ETFs in their products and I think some even allow you to choose to buy into an ETF. There's nothing wrong with using ETFs (as long as you aren't being overcharged).
When people like Op start posting these type of topics, the selloff is usually almost over. Will be buying stocks in the next 5 days.
My advice: don't touch your super. Trying to make educated guesses, even if you are an expert, doesn't work (most of the time).
Proof: If I threw darts at a page of stocks while blindfolded, then purchased them, I'd beat an expert stock analyst 4 times out of 10. They'd win 6 (and charge you a lot for those services). Worse: if you picked a large index fund, it's basically a dead-even tie.
You're not smarter than the market, though making a decision to change will make you feel (falsely) that you're in control. If you don't like risky assets as a long-term strategy then definitely change to a less risky one and you'll feel safer (and earn less in the long run).
But if you're sure you can time it, then here's a challenge: take a guess which way the market will end for the next 3 days, on a scale of 1-7 (1=large loss , 4=even, 7=large gain). Use any index you've heard of e.g. ASX200, DJIA, S&P500. Come back in 3 days and see how close you were.
I'll make a prediction right now, all 3 of those markets will be down and down significantly for the next 3 days. I pulled out my super from International Shares on the 25th, against the advice of many on here.
You'll probably be right - we seem to be in mega fear mode.
But have a look at the past two weeks: most days, the market ended ahead. Same crisis. Predicting the market reliably isn't as easy as it feels, but it sounds like you've made a decision (and certainly not an unreasonable one). I hope it works out.
For most super funds, there is minimal difference between the different risk profiles of conservative, moderate, aggressive etc. You will notice that they will invest in the same assets classes but just in slightly different percentages. Furthermore, in times of panic, most asset classes become correlated which negates the benefit of diversifying. If your super fund allows it, switching the investment to cash or gold is a better way to preserve capital.
Thanks for the advice.
True, just checked my aus super investment plans and found only stable got bigger chunk of cash n fixed percentage. Even conservative balance has small percentage of cash n interest. Investing in super property plan will more likely going down too? Usually property follows shares trend from the past.
I don't want to give advice because that never ends well.
A lot of the comments here are suggesting set and forget is always the best policy as you can never pick the highs and lows.
I think this is short sighted to some extent as you don't have to pick the high or the low for it to be beneficial. Say you miss 2% on the way down, and 2% on the way up. If the drop was 10%, then your still 6% better off (to put it simply). That 6% then compounds over the next 30 years and makes a massive difference to your portfolio.
The share market went crazy last year (20%) for no real reason apart from cheap funding. This suggests, in my opinion, its a little heated meaning a repeat of those returns this year appears unlikely (again, my opinion).
So what you gunna do? I always ask myself a set of questions given my feeling of the market. I think this should apply to everyone.
How would i feel if i switched to cash and missed out on a 10% rally.
How would i feel if i stayed in the market and lost 10%.
For me personally, I'd switch to cash, watch the virus cause a global recession then watch the markets melt even more when Bernie gets in. After that has cooled, geared shares all the way back up. Good luck.
This advice assumes, wrongly, that the average person knows which direction the market is heading.
To give you a hypothetical that shows how wrong this assumption can be, compare Person A with Person B.
Person A & Person B both buy the index at 1,000.
Person A does not try to time the market. Person B tries to time the market, as you suggest.
The index drops to 900 on corona virus fears. Person B sells their shares because they know it is going to be a long period of low/no growth due to the virus.
The index drops to 850 and stays there for a while. Person B does not buy back in because they are already down 100 points (buying 1,000, selling 900) so they are waiting for it to drop to at least 800 before buying back in.
A vaccine for corona virus is announced and the index shoots up to 1,100. Person B buys back in because they think corona virus is over. They have already lost 200 points compared to Person A (they sold for 100 points less than Person A and they bought for 100 points more than Person A).
A vaccine shortage develops and the virus spread. The index drops to 1,000 and Person B sells because they see the virus tanking the market. They are now down 300 points.
The flu season ends in the Northern Hemisphere and the index rises back to 1,100. Person B buys again. They are now down 400 points compared to Person A.
It is correct that no one can time the market. But what crowsnest bomber were saying, he doesn't mind to lose 2% of 10% of low and high. And in between pretty sure the money will be invested elsewhere even though in low return cash. I know a personal friend who is bold enough to sell in the wake of 2008 financial crisis and bought back when market starts recovering. He didn't get the max potential but got a house for free. But yes, i agree timing the market is risky, i personally would think that the house price should be crashing (normalising) by now but apparently not right.
But what crowsnest bomber were saying, he doesn't mind to lose 2% of 10% of low and high.
But that assumes you know when the market is falling and when the market is rising.
What I'm saying is that the average person does not know this information.
Say you sell today on corona virus fears. What if this is as low as the market goes? What if it rebounds on Monday and doesn't significantly dip again? You've lost out forever.
Your friend got lucky. When you start timing the market, you're doing little more than gambling — you're taking a bet on the way the market is headed.
What your saying is absolutely correct, but it doesn't mean my statement is incorrect either.
If you can time your sells and buys somewhat accurately, your returns can be exponentially larger, so that strategy shouldn't be completely dismissed,just because its difficult to do.
Yeap, i agree. U can't pick top or bottom, but you can have an educated guess in investing /changing your portfolio by reading market trends. Off course, it doesn't mean the strategy eliminates risks.
dollar cost averaging
if it means anythingWent into cash one month ago. I'm laughing. Don't listen to the buy and hold dummies. I'll stick back into equities when the market has finished being routed.
I decided to switch everything into cash on 14th Feb. Based on the following:
1) coronavirus seemed to be accelerating. There was a clear risk that it might spread and have an impact on the markets.
2) market outlook was already looking poor.I figured that preserving existing funds is the best strategy for the next 3 to 6 months. If I miss some growth, so be it.
Of course, if there's a big drop in the markets, I'll switch straight back into Australian shares.
OK, thanks for the reply guys. I have decided to hold steadfast and ride it out. I didn't realise that I would need to "sell" my index of shares. I thought that they would merely switch over to another investment for me because I'm in a Superfund. If I sell now it's too late and losses will be realised. Do you think Corona beer would be a good investment? jokes. Good luck to everyone :)
Yea, in same boat i switched to conservative balance n stable 3 weeks ago. Was thinking to switch to cash/ interest 80% but too late atm.
Perhaps use this time to learn what asset classes are, investment strategies and how market mechanisms work. You have the passion obviously just need deeper learning on something your interested in. Best thing of all you put it out there for comment to learn… kudos and g'luck.
Merged from Super - Go Conservative?
Just saw the ASX got pantsed. Have a government super fund that is in the highest risk / yield category (Aussie and OS shares).
Is it too late to change into a conservative investment option? (I don't know how they work on a day by day basis)?
Lastly, what category would you put super into at the moment? Ie cash, property, shares etc?
Horse has bolted.unless you are near retirement just ride it out.
Im self managed and have avoided this by investing in crypto currenciesHow was their performance last night?
Wait, your entire superfund is invested in crypto? How do you pass audit?
what is stopping you from investing your entire SMSF balance in one particular asset or asset class?
It may not be advised, and you have to take into account diversifying, but you don't have to actually diversify if you don't want to.
there is nothing, as far as I am aware, that stops the trustee from investing 100% in crypto?
Has it bolted though? None of these nation shutdowns were in the GFC. Plus this is a correction that was always coming and Corona is just the icing on the overbaked cake. Any way to get a GFC time chart of the ASX to see the patterns?
Have we ever recovered from the GFC, interest rates etc suggest not. Anyway..
My memory was a few days of flogging, followed by a short term recovery, followed by a compounding downward spiral. I missed the initial drop last time,but got the changeover to cash/bonds in the early phantom recovery (got lucky to be honest as the change happened 48hrs later and there was a recovery). Then missed the first 10% recovery (which really isn't 10%.. see below), and ended up around 20% better off overall (which equates to around 9 months of wages).
In my opinion its also easier to pick the recovery based on humanisms around numbers.
Let's say the market drops 30%, then the next day recovers 30%. You aren't back at the same point. Ie, if based on $1, it drops to 70c, then recovers to 91c. You still have a chance to get 9% of the recovery even if you missed the main part.
Ok, I have crunched some numbers on unit pricing and have concluded that High Growth / Growth funds are down around 5% since Feb 22 (which is still significant, but not down 13% and then 21% respectively over the 2 years of the GFC). Capital Defensive is down 1% and cash is basically no change. So we are currently talking about missing out on a 4 - 5% drop.
Today we are seeing some recovery, but this also happened in the GFC. If that repeats, we are looking at 20% (but to be honest I know nothing about the correlation between where we are now and the GFC, other than we have China literally catching a cold (big player in Oz), and the rest of the world sneezing, what appeared to be an 'over cooked' market, and an Iranian official bombed..and we never really spoke of it again. To be honest, I dont really know how people throwing their house keys away in the US affected the whole world in the GFC. So with that same thinking, does it matter that several major countries are on complete lock down? meaning less production and people aren't flying?
Anyway, back to the numbers..I have spoken to my gov Super provider regarding changes:
The unit price is noted at 5pm on the day you elect to change, and it costs nothing to change ($20 thereafter per future change). The change will take 3 days to be done, but the unit pricing on the day you requested the change will be used (albiet 5pm).
So, what do we think this Global Flu Crisis is going to costs markets % wise, 5,10, 20,30 %? and who is going to hurt the most? (ASX, NASDAQ etc..or property etc)
Uncertain times we live in. Seems like the world is driven on fear and greed these days.
You raise some thought provoking questions. I wish I had the answers or a crystal ball.
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I'm not planning on retiring anytime soon. Risk it for the biscuit.