The biggest mistakes retirees make with investing super savings

Before we finish 2022 year, I would like to talk about one of the biggest mistakes pre-retirees and retirees make with their investment savings and super. 

And I am not talking about it to make the 2022 being finished on a negative note, but rather to welcome 2023 on a positive note, so you can enjoy better investment returns knowing that you have done your research, you have chosen your fund well. 

You are not the one to listen to the masses, and you can actually make your own decisions without the pressure put on you by the government, by the super fund, by the media selling you the bad news – because we all know, bad news sells, scarcity sells.  

E&P chief investment officer, Tim Rocks, has detailed the biggest mistakes made by pre-retirees and retirees when it comes to building their investment portfolios. 

Rocks said he frequently saw investors make the same mistakes being too focused on short-term performance. 

When participating at the Morningstar Investment Conference in Sydney, Tim Rocks said: 

“All mistakes come from one error which is not having the right timeframe, it’s absolutely critical. No-one in pre-retirement should care about their one-year performance. We should all have a timeframe which reflects the timeframe we are going to need those investment and that should be 10 years plus.” 

Please do not disregard this message that seems like an obvious one. Maybe it is obvious, but this is exactly why such a message is not paid attention to. We always look for a smarter way, more complex, more sophisticated. It is impossible to believe that simple, obvious and known as a common knowledge can work.  

But this is exactly the same the situation as spending more than you earn, you will have no savings and you will continue to be in debt. Common knowledge, and yet people are constantly surprised, why I have no money?  

If you keep money in cash long-term, your savings will not keep up with inflation and as a matter of fact, your savings will go backwards in its purchasing power. Common knowledge, and yet lots of people insist on doing it, believing that this is the way to financial safety, while it has been proven, time and time again, that it is not, it is the opposite that brings us financial rewards, great long-term returns and satisfactory savings at retirement.  

And this is exactly where most people go wrong. Continue the short-term focus, although they know well, that this is to their own detriment.  

So why am I talking today about that biggest mistake retirees make with their super or savings?  

Well yes, saying good bye to the old year is a great time for some reflection, and this is mine, based on my last year hundreds of conversations with clients. 

For years and years, you must have heard the message:  

• “Don’t concentrate on short-term returns, market can be very volatile short-term, keep your eyes on the long term outcomes that your fund has been designed to deliver.  

• Don’t react impulsively to the short-term downturn of the market, stay invested, don’t sell your investments to move to cash when the market is down, keep your investment going, as the market will recover, and you will miss out again.  

People who constantly do it, are some of the investors that must have lost the biggest fortunes, Not only they lose money when the market is on its way down, but also when the market starts its recovery,  as you will never know when to get back and invest your savings again, and too often those people will reinvest money when it is too late and the market has already had its run. 

Isn’t that true? Isn’t that what we’ve been told over and over again?  

And the fact of the matter is that, this is the best advice you can ever get. Whoever has tried to pick the market has never won. Nobody, but nobody even the best professional investors can pick the market, so why would you even try?  

Look at Warren Buffett. One of the richest investors in the world, one of the best investing minds, and yet he never tries to pick the market, he only buys high quality stocks, he is a long-term holder and investor of good quality stocks, but he never tries to outsmart the market, just good old fashion long-term consistent investing.  

So if the godfather of investing cannot do it, why on earth would you think you can?  

For the last few years our government has had an agenda to “fix superannuation funds” and remove those of low performance.  

I can understand, accept and fully support trying to remove super funds that overcharge members for their service, but to push super funds to meet the annual performance test is just ludicrous.  

Now, even the biggest independent superannuation and investment research houses are confirming, what I said in my very fist video, when introducing the whole idea of naming and shaming super funds underperformance. 

See “8 changes to super”. I prepared it a year ago, but the message is just as valid today as it was the day I recorded it. See point 4, and you will know exactly how I feel about the whole idea of naming and shaming and the idea of the annual performance test.  

It has already been proven by independent research houses that those super funds that were named as some of the worst performers in one years, happen to be some of the best performers the year after.  

All the government is doing with that annual performance test is exactly the opposite of what the investments industry was teaching us all those years, not to concentrate on short-term performance, but to look at returns with the view of a time frame of 5, 7 10 years plus.  

By introducing the annual performance test, not only the government itself pushes members to look at returns in annual increments, which is wrong as we just discussed before, but it is also forces all super funds to be extra careful and conservative with their investment choices.  

As I originally said, good returns, require some investment risk and that requires great deal of research, resources and time. But that is no longer given to super funds, everything is judged immediately, so all super funds have started to adjust to that new regime.  

In order to survive, all super funds started playing the game of mediocracy and not to take any risk, therefore we you will be receiving a mediocre returns. No super fund wants to lose the business or to be named the worse super fund in Australia. Therefore, they will quietly comply with the rules and rather than try to get you the best possible returns, they all will become a placid market follower, just to stay in the business and not to be included on a “shaming list”, regardless of the benefit or lack of it in your returns.  

So please keep your eyes and your mind open and be very selective of the information that you hear on the news, on the advertisements in a paper.  

At the end of the day, it is your money, your savings, your future.  

So please remember, the biggest mistake you can make is to concentrate on a short-term return. Please stop, accept the fact that market forces such as inflation, recession, wars, changes of governments, have impact on your portfolio beyond your control.  

But that passes, as long as your investments are with reputable companies, companies that have great cashflows, low debts and great market share you your investments might suffer a short term hiccup but will keep on growing over the years.   

On that note, I would like to wish you and your families a beautiful, safe, and very relaxing Christmas and a happy and successful New Year.  

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