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Super saga...

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Tropo, 5th Jul, 2013.

  1. Tropo

    Tropo Well-Known Member

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    Quote :

    My Biggest Gripe
    At the end of every financial year the media generally does a wrap up of how various asset classes performed over the previous year.
    As you would expect some went up some went down and some went up and then down in spectacular fashion. Nothing new or enlightening.
    These lists are good only from an interest only perspective since they dont really convey anything meaningful about the trajectory of various asset classes over an extended period of time.

    Everyone by now will realise that superannuation is one of my major sources of annoyance.
    Not the idea but rather the execution of the idea by those charged to do it at least vaguely professionally.
    To be blunt super funds are rubbish no matter how they try and spin it – their long term return remains firmly rooted in the low single digits.
    This incredibly poor performance in which all under perform the market.
    And a large number even under perform a simple cash investment is a societal problem since most people with average super contributions and sub par returns will not be able to retire with anything near what is required for an even modest lifestyle.
    It is here that my self interest kicks in. If people cannot provide for themselves then others will have to chip in and assist them; that means you and me.
    But I have deviated. The original source of my irritation was this grab from the Melbourne Age - Top stock of the financial year: 3500% rise

    Super returns
    Thanks to the share market’s strong performance, superannuation returns are reaching those heady days before the financial crisis.
    Balanced super funds are expected to return 15 per cent in the year to June 30, said Mano Mohankumar, investment research manager at super researcher Chant West.
    This is a touch off the 15.6 per cent return recorded in the 2007 financial year, and the second highest return since the late 1990s, he said.
    Balanced funds are the most common super category, mostly invested in growth assets such as equities.
    Most of the returns can be attributed to the rally in sharemarkets over the eight months to February.
    “The post-GFC period has been a good one for super investors as in 09-10 funds returned 10 per cent, in 10-11 they returned 9 per cent, in 11-12 they returned 1 per cent and this year they should do 10 to 11 per cent,” Mr Dunnin said.
    “That’s a cumulative return of 33 per cent since the GFC … This is not bad in anyone’s language.”


    Firstly, it is cherry picking data.
    Secondly, it attempts to portray the notion that superannuation funds have recovered from the GFC – they have not by any stretch of the imagination.
    If we make the assumption that a balanced fund derives its push from its exposure to equities then we have to also assume that they track the basic movements of the index.
    This means that each of these funds will probably have had a drawdown of around 50% during the GFC.
    If my super balance was $100,000 pre GFC then at the depth of the GFC it would have been $50,000.
    Making 33% on my remaining $50,000 takes me back to $66,500 – a long way short of my original $100,000.
    If I had wanted to retire during this period I would have been stuffed. In fact if I want to retire anytime in the next ten years Im stuffed.

    This raises the question of a possible solution to this somewhat endemic problem of under performance and its consequences for society in general.
    The easiest solution I can think of is for the Government to set up a very low cost fund that simply buys the All Ords TR index.
    Simply buying and holding the index will outperform most (read all probably ) funds on offer at present. And the reduced fees will greatly enhance the return to investors.
    I am not a fan of buy and hold since it is lazy and ineffective and simply timing the index and moving into cash when it falls below the long term moving average would greatly enhance the performance of the fund.
    It would put a stop to the enormous wealth transference (con) scheme that is superannuation.
    Chris T.
     
  2. Redwing

    Redwing Well-Known Member

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    Then take out fees...
     
  3. Tropo

    Tropo Well-Known Member

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    ...AND fire Fund Managers PLUS Financial Advisers !!!!!! :cool:
     
  4. Chris C

    Chris C Well-Known Member

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    I'm not going to defend the notion that "Super is the best investment", it's not, but just throwing rubbish figures out into the public domain like "Super lost 50% in the GFC" just because it suits your argument just lacks integrity:

    AustralianSuper - Super Performance Annual

    And a return of 7.6% for the average Australian over the last 10 years is far a tragedy for the "no effort investor" and a hell of a lot better than the "average trader" returns, ie 0% pa (please note I'll happily concede that a small proportion of those engaged in trading do make substantially more than the market, but these traders are not the "average").

    And Chris Tate belittles the media for being "good only from an interest only perspective and doesn't really convey anything meaningful about the trajectory of various asset classes over an extended period of time" when I don't think he is much different.

    So those that live in glass houses shouldn't throw stones.
     
  5. Tropo

    Tropo Well-Known Member

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    Well...Some people may have a problem to fully understand what Chris is saying.
    If you are one of them, why don't you re-read his article again?
     
  6. Chris C

    Chris C Well-Known Member

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    This is what Chris T is saying:

    "Everyone by now will realise that superannuation is one of my major sources of annoyance. Not the idea but rather the execution of the idea by those charged to do it at least vaguely professionally. To be blunt super funds are rubbish no matter how they try and spin it"

    What Chris C is trying to say is this:

    Yes super is unspectacular - but that's the point. When the stock market is down by 50% super will only be down a fraction of this amount because Super is well diversified.

    Yes that same diversification that limits upside potential - but would you rather manager who had free reign to "trade" with your retirement savings knowing that "trading" is a zero sum game. For someone to win someone else must lose and that the returns of your investment would ultimately be eroded by brokerage fees...

    If you are one of the 10% who can get better returns over the long term trading than super then it makes sense to trade, but for the 90% super makes more sense than trading.
     
  7. Tropo

    Tropo Well-Known Member

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    "When the stock market is down by 50% super will only be down a fraction of this amount because Super is well diversified".
    Who told you that? :confused::confused:
    If market is down say 50% majority of super funds are also down close to this amount (there may be some exceptions) as they put super money in the stock market.
    It depends how you understand diversification...
    Having different names (shares) in portfolio has nothing to do with diversification. Diversification means investing in different asset class. Share market is only one asset class and buying different shares is not a diversification.
    When global markets are down, all/majority of shares are also down.

    "Yes that same diversification that limits upside potential - but would you rather manager who had free reign to "trade" with your retirement savings knowing that "trading" is a zero sum game.
    For someone to win someone else must lose and that the returns of your investment would ultimately be eroded by brokerage fees..."

    Incorrect!!!
    It seems to me that you do not understand a difference between stock markets and derivatives.
    Stock Markets are not a zero sum game (if I bought a share for $5 and sold it to the next person for $8, I made $3 profit and did not lose), but derivatives are. Brokerage may not be a big problem if you are well upfront.

    "If you are one of the 10% who can get better returns over the long term trading than super then it makes sense to trade, but for the 90% super makes more sense than trading".
    There is not much difference between trading and investing (whatever you call it), but if you think that somebody else will make money for you...think again.
    If you consider super returns for the last 10 years, you may be better off keeping your money in the bank (mission impossible in case of super).
    Superannuation Performance | Industry Super Network
     
  8. Redwing

    Redwing Well-Known Member

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    Many Managed Superfunds seem to have problems outperforming the ASX200 Accumulation Index

    Management Fees are also a huge drag on performance, making a SMSF appealing
     
  9. Tropo

    Tropo Well-Known Member

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    You are right !
    I would say that too many Super Funds underperformed ASX200 for far too long and charge ridicules fees for it.
    As long as managers are paid good money for very poor performance, nothing will change...So, the only people who are making money are Funds Managers not investors.
    In this situation, the only way to go seems to manage your own portfolio if you can.
    If one cannot manage own portfolio (SMSF) for whatever reason, one need to pay managers for poor performance.
     
  10. Chris C

    Chris C Well-Known Member

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    Here is an example of a balance super fund ripped from a super fund website:

    Australian shares 29%
    International shares 23%
    Direct property 12%
    Infrastructure 14%
    Private equity 4%
    Fixed interest 13%
    Cash 5%

    If Australian shares are are down 50% holding all else equal your portfolio is down 14.5% NOT 50%...

    If you want to argue that international shares are also down 50% then your portfolio is still only down 26%.

    Then you need to consider that asset classes like fixed interest and cash increase in real value during deflationary periods (which typically accompanies stock price falls). This will offset loses to a degree. Offering you "diversification".

    That is what super is - a well diversified "set and forget" investment for the masses designed to get you average returns (minus management fees).

    Not true at all.

    Yes share prices are somewhat correlated, but shares are simply a "share of a business" whether the share prices moves up or down is determined by the prospects of earnings of that company.

    Ie when the AUD falls some companies do better (ie the exporters or those competing locally against imports) and some companies do worse (importers or those competing against local products).

    When commodity prices rise commodity producers typical do well while commodity consumers do poorly.

    The "market" may move, but what individual companies do is typically based on that company itself.


    Once again not really the case at all. All markets and economies are at different phases. The US is at all time highs, Australia's is muddling along in some middle range, China's market is near 7 year lows...

    Yes some markets are relatively synchronized, but not the entire globe - just as money moves around local economies such that when some segments are sold down and others bought up - the same happens on a global level - some countries get sold down and others get bought up.

    Yes we can argue about definitions but here's the mathematical reality...

    If the average company has real earnings growth of 4% per year (which is what the share price is a derivative of) and the average cost of trading is 1% per trade. Then if you don't hold the shares for longer than 6 months you have essentially wiped out the value of holding those shares as an investment (assuming you lose 2% when you buy/sell).

    However you can still make a profit if you buy/sell well (aka as trading), but under this scenario where market participants hold shares for less than 6 months on average no profit is made by the participants when considered in aggregate, therefore for one individual to win (ie trade well) another must lose (ie trade badly).

    And of course the outcome for the participants gets even worse the more often they trade and the higher the brokerage fees.

    I completely understand why people delude themselves into thinking they are marking money "trading" but the vast majority are not outperforming the returns they would have achieved if they just randomly invested their money (or god forbid put it into super).

    ;)

    I never said "share markets" are zero sum games - I said "trading" is.

    What you are failing to consider is the the financial reality of the world. You flippantly say that a company's share prices goes from $5 to $8 and everyone wins - but that is not how an economy works.

    Money doesn't simply appear from nowhere. That $8 that paid for that share came from somewhere - ie it was extracted from another share to purchase it or it was borrowed into existence - but it must be repaid at some point in the future...

    So assuming that the broad money supply is relatively constant (or at least appreciating as a constant rate - aka as inflation) then for every share price that appreciates in value more than the rate of productivity gains within an economy their must be a share price that falls by that value (assuming that the public share market remains a constant proportion of GDP).

    You can think of it in simple terms like: if one company wins market share and increased earnings another one has lost market share and lost earnings.

    Ie money moves around an economy and is allocated to different investments but ultimately trading yields nothing tangible for an economy beyond offering basic liquidity for capital to flow within an economy.

    And if that simple analogy doesn't resononate maybe this will...

    If EVERYONE was to quit their job tomorrow and became a trader would we produce anything of value at all?

    Nope... all we'd be doing is swapping capital and trying to game each other to end up with more than we started with, but with every trade our capital would depreciate in the form of brokerage until the point where all the capital was exhausted and the brokers were left with no customers and all the capital.

    There is a MASSIVE difference - when a company IPO's it raise capital to build its business to produce something tangible for the world (99% of the time).

    Without shares markets people with good ides would struggle to raise capital to fund their ideas or as is the case these days people that have built good businesses would be impeded in divesting their business to pursue new business ventures.

    That said, you are right that there isn't really any social value offered from buying shares once a company has been IPOed - outside of freeing up another individuals capital to potential invest in another IPO or start up business...
     
  11. Tropo

    Tropo Well-Known Member

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    Why don't you do it >>>>
     
    Last edited by a moderator: 17th Sep, 2016
  12. Chris C

    Chris C Well-Known Member

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    ???

    Or you can just post youtube clips...
     
  13. Tropo

    Tropo Well-Known Member

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    That is all you will probably understand.