Coronavirus and your Superannuation

1. Is this another GFC?
2. Is a recession possible?
3. What should you do with your superannuation?

Is this another GFC?

Over the first few weeks, we have experienced an incredible and unprecedented market behaviour.

Australian market dropped over 23%, which only creates more panic, more worries, and more insecurities.

Many people started asking – is that another GFC?  The answer is definitely NO!
GFC was a financial crisis with many banks and financial institutions facing insolvency. At that point, governments stepped in, injected a lot of money to those institutions to stabilise the market. Yes, it took several years for the market to recover, but it has and a few years later most people forgot about GFC.

Today, however, we do not have a financial crisis, it is medical crisis, so most likely a different level of support and assistance is required. One thing to remember though is that Coronavirus is a virus – just like flu is a virus. In that sense, they are very similar. Flu can kill you just as well, but it will not kill everybody. If you are predisposed due to age or respiratory issues, stay home, and just wait it out.

Of course, we do not want the virus to spread, but it is not a killer the way press, news, TV has been talking about at the beginning. The panning is unwarranted, but the virus will leave social and medical consequences. And this is an occurrence we most likely need to learn from for the future.

Unfortunately, this medical crisis impacted our daily lives and consequently also the world economy. But it is not a fiscal problem, like during GFC.

We see people unable to go to work, we stop socialising – restaurants are being affected, lots of casual and part-time workers are losing their jobs. Trade with China has been restricted or rather stopped. Our resources are not going out, oil prices dropped, we see supply and demand shock – this is what impacts the economy, not the virus itself.

President Trump just like our Prime Minister injected money into the economy to assist businesses and the economy flowing. In Australia money given away to businesses are to keep staff on, and all Centrelink recipients will be receiving and extra payment of $750.00 payable in March/April also to assist the economy.

Is a recession possible?

I have been following news from many sources and many fund managers, investment houses to listen to economists and experienced investment minds. So this is not my personal opinion, but I think it is a very valid issue you should know about if you have money invested in your super and any other time of investing vehicle.

Our biggest economic partner is China. China is a command economy – therefore when they had an outbreak of Corona Virus, the government without any approval from the people decided to close the country, restrict the movements of people and fight the virus immediately, even if that means losses for the economy. Economy and trade virtually stopped in China.

So looking at China’s activity, they are managing the issue rather well and it is quite expected for China to return to “normal economic activity relatively fast”. And as it is our biggest partner, we should see an immediate flow-on effect in Australia. This together with hopefully good fiscal support from the government, should assist Australia to avoid recession.

As a matter of fact, what most fund managers are expecting is so cold V-shaped or U-shaped market recovery as a most likely outcome. What that means is that just as fast as the market dropped, it should recover. Why?

• Interest rate is very low – no return on your money from the bank account – cash
• Inflation is 0%
• The only type of income you can earn today is yield – there is not much alternative, so most investors will quickly return to the market once they hear some good news
• We get closer and closer to a solution to corona Virus – that is very good news for the market
• Markets are forward-looking – so react much faster than a private person

All of this I think is a very positive confirmation that markets will recover just a quickly as they dropped.

As usual, it was an incredible panic, and rather unwarranted.

What should you do with your super or any other investments/savings?

There are a number of issues I would like to explain here

• If your super/pension fund is invested in a balanced or conservative portfolio – remember that only a percentage of the balance is actually invested in equities – and conversely, you should have a nice exposure to bonds markets – and this is the area that has actually increased in value, so it is not an issue that all your money dropped in value.
• Diversification is the king to reduce volatility and improve securing assets against downwards trends.
• If your super contributions are going in, each time that happens and the market dropped, your money is buying cheaper investments – this is so cold dollar-cost averaging. Regardless of market behavior – your cost will be the average of market price over time and this is very good news for your portfolio overall return.
• Your investments are earning income, as long as it gets re-invested, similarly, it is buying new assets at lower prices if the market dropped. Once the market starts moving upwards, you get extra growth benefits.
• Superfund is a long-term investment – investments for decades to be correct. So knowing that, don’t play the game of in & out, in & out every time there is bad news. It is impossible to time the market; you will only give the money back to the market.
• Remember each time you sell, because the market is dropping, somebody else is buying it from you -which one of you is smarter? Who will make money out of this transaction? Not you, if you are selling on losses.

My final thought about your super:

• First of all, check your asset allocation – diversification – are you happy with that?
• If yes, do nothing – the idea behind asset allocation is to provide good growth over the long-term, but also protection when the market is falling.
• If you are not happy with your asset allocation – learn about it and change it to your satisfaction. If unsure how to do this or what that means, seek professional advice, contact me to discuss, read my posts – do something and start looking after your money.
• Benefit from market fluctuation – new investment, new money is buying cheap high-quality companies, so turn it to your advantage.

As they say:
Be greedy when others are fearful, but don’t play the market timing game!

by:  Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement