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Unfair execution

The most dangerous aspect of the new age of interactive media is that we so-called experts can be nailed by a viewer question or a chat room assassin. Now, I’m not saying that some nailing can’t be good to deflate some experts’ egos, but when it’s an unfair public murdering, I think it’s time to object.

This new view of mine came to me when I saw a shares expert on Sky News Business Channel’s Your Money Your Call put on the spot and summarily executed. Thankfully the body was not quite dead and the expert put the issue into context. In fact, he made the case that should be made to many long-suffering super members who are filthy that their funds have been going backwards.

In the witness box

Let me put you in the picture of what I witnessed.

A caller asked if the expert was responsible for a certain fund. The caller became very precise naming the fund and then asking if it was the fund that had lost 26 per cent over the year?

Now the caller could have been a fund member or even a rival, but the facts were out there and the fund manager had to make the defence that most fund managers would have had rehearsed off pat.

The defence

This, virtually, was his defence.

“Well, given stock markets tumbled 50 per cent or more at one stage and that over this year, the local market has finished down 26 per cent and after we add in this last quarter, I’m sure we will be looking a fair bit better,” he replied.

I think the time to whinge and switch funds is when your fund under-performs the average fund for two to three years.

Positive returns

Of course, if you have not done any homework about your all-important super fund, then you do really need to react to results. However, one bad year could reflect a safe manager who wanted to make sure a bull market had started and therefore was heavily exposed to cash returning low interest rates.

Generally, most super fund members have some idea that the funds have to return a positive amount every year. If that’s your attitude, you should tick the most conservative box that your fund offers. This means when the average fund does 10 per cent or better, you might get three to four per cent! However, when these funds go negative you might still get three to four per cent

Not so super results

Hot off the press, SuperRatings have released their latest take on super fund returns. Our super funds look set to record around a 13 per cent loss for the financial year. The super watcher firm says this is the worst result since a compulsory retirement savings scheme was introduced in Australia in 1992 under Prime Minister Paul Keating.

SuperRatings expects the median balanced pension fund option to fall 13 per cent on year and this is a similar result to another fund monitor — Chant West.

These figures are for balanced super funds which 80 per cent of Aussies are involved in.

Rising market

Now given the outlook of market experts, the next round of super results should creep into the positive, but it still could be a close run thing. You see, since 9 March the stock market has gone up 24 per cent and a group of 150 analysts surveyed by Reuters found an expectation that our market would go up by 6 per cent by year’s end.

Outlook for super funds

This could imply some ups and downs before a net positive result comes through. But the best news for super funds and their members is the prediction of AMP’s Shane Oliver who recently suggested that our market could jump 18 to 20 per cent next year.

If that happened, even the dumbest fund manager could make money.

On that point, if the market went up by say 20 per cent, your fund might only gain by 10 per cent because super fund managers have to play it fairly safe and that might mean 30 per cent of your money could be in a safe four per cent fixed interest deposit which then brings down your overall return.

Gains outstrip losses

There are not many things I’m 100 per cent sure about in the money world, but I can guarantee you that most publicly run super funds will see many more gain years than loss years, and they will return better results than a bank account.

There are three reasons for that. First, they chase better returns. Second, you can’t draw the money out unless there’s a major calamity. And finally, there is a snowball effect of the money rolling over.

You can whinge about funds in bad years but for the average person who has no idea about investments, and is too time poor to become an expert, compulsory super funds and investment funds are a good idea.

Keep this in mind

Two important things all super fund members can and should do are a) find a fund with a good track record and b) make sure the fees are not too high.

It means doing some work but as I always say, if anything is worth doing it’s worth doing for money!

Published on: Saturday, July 04, 2009

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