For most Australians, picking individual stocks and maintaining stock market vigilance is a passionate hobby.
But what if you don't have the time? What if you just want to look after money, not make money? What if you need something more passive? What if you don't want to step onto the stock market battlefield, get distracted from your metier, and take risk?Well I have some good news.
There is nothing wrong with that Big Super or Industry Fund that you are already invested in.
Almost everybody has Super and for those of you that want a peaceful life, undisturbed by share market volatility and requiring only marginal vigilance, you need do no more than stick with the structure that most of you already have. That is to say, leave your money tucked in one of the large superannuation or industry funds because there is nothing wrong with that, for a number of reasons:
- Leaving it where it is, is OK. Leaving your money in a fund of some sort means that you're not going to be gambling with it. Individuals being allowed access to their superannuation money is a very dangerous element of the superannuation legislation and rather goes against the principle of "putting money away" for retirement. We are all prone to gambling so it is better the majority of you don't. Managing Super is best left to the unambitious, especially those of you that have dependents relying on superannuation. Losing your retirement funds under the camouflage of seemingly sophisticated yet wholly amateur investment is utterly irresponsible. If you are not engaged, interested, passionate and skilled, do yourself a favour, leave it where it is in some massive super fund.
- Be long term. You simply don't make money gazing at the stock market on a day by day basis, you have to focus on the horizon. Everybody knows it, but only the old and experienced do it. Successful investment is about long-term returns, it is not about daily heroism. Individuals cannot help but try and find rockets under rocks. Big funds don't. Big funds are a heck of a lot less volatile and by definition, safer than allowing some rank amateur (you) manage money.
- Time and quality of life. Leaving investment up to somebody else leaves you free to do the one thing that you should all be doing, which is to invest in your career, intellect, development and/or business. Spend an hour a day looking at an online broking account and that's 250 hours a year you could have spent furthering your career, education or business. Investment in the markets is time-consuming. Investment in yourself is perpetual, stimulating and low risk, the lowest risk investment you can make. A focus on that when you are younger will pay far more dividends than the Commonwealth Bank, because, without a doubt, your chances of financial transformation are far higher in your business life than they are buying and selling stocks. Your career, brain, and business are low-risk long-term investment. The stock market, if you take it on, can be a high risk, short-term, series of investments, which don't build your assets at all.
- Technology has moved on. Thanks to technology, most major super funds and industry funds now offer you the ability to do some mild stock market timing through the back end of your chosen fund's website. You can now get off your Harley-Davidson on Route 66, walk into a bar, find North Korea has launched a ballistic missile, get your mobile phone out, go to your funds website and click "cash" (OK so it takes three days - but it's not bad). The Big Super websites and Apps are now a fantastic tool and this is about as much market timing as any of you need. Clicking between cash or aggressive and back to cash as appropriate. If you're lucky, you will only have two press cash once a decade, but you should (1) know the website where your superannuation fund account is available (2) know your password to log in, and (3) know how to navigate to the page that allows you to click Cash, Conservative, Balanced or Aggressive and be able to switch between Cash and Aggressive (the ones in the middle are just a mix of the two and are there for compliance and marketing purposes).
- Which fund. The next question is "Which fund". Well, they are much of a muchness at the big end. Whatever fund you are already in will probably do, as long as it is big and has a good website. The big funds are all vehicles to access the same average returns from all the markets (Balanced fund) or Equities (Equities fund). If you want to get picky then avoid an expensive platform (note Platform not Super Fund). Otherwise almost any big Industry or Retail Superfund is as good as any other, and most of them love you up as a Member rather than a customer. Bottom line, any of the major super funds is absolutely fine whether it is an Industry fund or not, your results will be very similar. Footnote - When the Barefoot Investor wrote about one fund being better than the others he did the industry a great disservice. He created unnecessary dissatisfaction with all the other funds when there was nothing wrong with them. There is no "Best" fund. He simply pointed out the cheapest at the time. Highlighting one fund was a mistake. Bad Scott.
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Key points:
- The Australian super industry has about $3.4 trillion in assets under management.
- About a third of that - $1.2 trillion - is managed by the top 10 super funds ranked by funds under management.
- More than 14 million member accounts are managed by the top 10 super funds ranked by membership.
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- The downside. The downside of leaving your Super in one of the major super funds is that there is very little in the way of "Active" management going on. In fact, laughably, they are now leaving the asset allocation (the management of which used to be the main value-add of a very large superannuation fund manager) up to you! In the end you will be invested in thousands of equities and all the asset classes, and that dooms you to a very boring annual return that will be below the equity market in a good year and above it in a bad year. It will not grow rapidly, and it will not transform you financially. It will simply park the money somewhere you can't touch it and where it will be at the whim of the financial market averages. That is a good thing most of the time because it means you aren't gambling with it, losing it or wasting any time managing it.
- The worst bit of Big Super. Just sometimes Big Super is a bad thing. When a market crash comes along, or a global financial crisis, or any of those other once-in-a-lifetime events that happen every ten years. That's when you need to hit "cash". Big Super won't do that for you. The point being that if you do not bother to manage your asset allocation yourself, no-one will do it for you and you will wear those big bad years (in the GFC the ASX 200 fell 54%) right on the nose. You CAN avoid them if you are awake. It took 11 years to recover the highs post the GFC. You wasted 11 years by clicking nothing. You also missed the fabulous recovery from the bottom that always comes after a correction. You can take advantage of all those opportunities if you can time the market. To do that you'll need to subscribe to Marcus Today of course.
- When to hit "Cash" - There is no scientific way to "call the market" other than subscribing to Marcus Today. Timing the Market is something we have been doing for years and as any Member will tell you, we have a pretty good track record doing it. If you don't subcribe, just do your best. If you start getting worried about whatever is going on in the world or the markets (getting disturbed about headlines like "Market has biggest drop in 2 years") - press "Cash" in the back end of your superannuation fund's website. You can always press "Buy" again the next day. You may only need to make one or two decisions a decade to avoid a seismic time-wasting market drop. Sometimes you simply have to sell the market or lose ten years. So keep a weather eye on the headlines and if the stock market knocks Collingwood off the front of the Herald Sun for the wrong reasons...take note.
- The main point of all this is that when it comes to amateur investment, young people should trust Super, trust the long term, try and time the big collapses and most of the time focus on building their brains, careers and businesses. The stock market is there for looking after money first, and making it second. If you are not prepared to get involved, treat it as a job, hobby or social outlet than leave it where it is, learn the password to the back end of your current fund and occasionally click cash when things look scary.
Author: Marcus Padley
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