The government and ASIC are demanding banks and financial service providers strengthen their scam and fraud defences. With this nefarious activity costing Australians $318 million in the past 15 months alone, the industry’s positive response has not come quickly enough.
With industry funds feeling the heat from APRA, it’s likely more members will look for a better option, especially if they are nearing or in retirement. Those choosing to do so need to tread warily.
When equity markets are volatile, a good response is to sit tight
Investors are likely to be up to three times better off sticking with a long-term equity strategy than attempting to pick winners and losers by constantly trading during market peaks and troughs, such as the current volatility caused by US tariffs, according to market analysis.
Nearly 100 years of stock market performance provides compelling evidence that trying to time the market is nigh-on impossible and that investors typically get out of a falling stock too late and fail to spot early signs of an upturn.
The analysis, by listed financial services giant AMP, says many investors feel under immense pressure to try and time short-term market moves, such as the Global Financial Crisis, the plunge in shares at the outset of the COVID-19 pandemic, or current nervousness caused by US President Donald Trump’s policies.
“But without a tried and tested market timing process, trying to time the market is difficult,” warns AMP chief economist Shane Oliver (pictured).
His warning comes amid growing investor nervousness about falling stock prices, uncertainty about interest rates, political tensions and global uncertainty caused by the Trump presidency.
Sebastian Mullins, head of multi-asset and fixed income, Schroders Australia, says: “The divergence in potential outcomes is extreme. While we can’t predict Trump, we can see what impact his policies are currently having.” He adds that some US economic reports already suggest the US is in recession.
In addition to the impact on holdings of local stocks, the high exposure of superannuation funds to US stocks, particularly for international or higher-risk portfolios, is causing fears that it could worsen.
Overseas volatility combined with falls on the local equity markets are making local investors nervous, says Andrew Saikal-Skea, founder of Saikal-Skea Independent Financial Advice. “But the answer to the question about what to do depends on the circumstances of the individual,” he says.
Savers contributing to their super with decades to go until they retire can take advantage of falling stock prices to buy at low prices and build their wealth. Retirees, or those approaching retirement, might need to review their holdings, he says.
Investor sentiment
Oliver says investment performance measured monthly will fluctuate as investor sentiment is influenced by events ranging from earnings reports and economic data through to changes in interest rates.
His analysis shows that those fully invested in Australian shares from January, 1995, would have earned a return of 9.5 per cent a year (allowing for dividends but not franking credits, tax and fees).
Avoiding the ten worst days would have boosted returns to 12.2 per cent, rising to 17 per cent for investors who avoided the worst 40 days. “But this is really hard, and many investors only get out after the bad returns have occurred, just in time to miss some of the best days.” And by missing the ten best days, the returns fall to 7.5 per cent, and just 3.5 per cent for missing the 40 best days.
Over the long run, a $100 investment in 1928 in the switching portfolio would have grown to around $280,000, but the constant mix would have ended more than three times bigger, at about $932,000.
Oliver says shares and growth assets provide superior long-term returns despite periods of short-term underperformance. “It makes sense for super to have a high exposure to them,” Oliver says. “Switching into cash after a volatile period can lock-in losses.”
“The best approach is to recognise that super and shares are long-term investments and adopt a long-term strategy to suit your circumstances – in terms of your age, income, wealth and risk tolerance.”
Saikal-Skea says those preparing to draw on their super funds should be considering a more defensive range of assets that will include cash and higher-paying fixed-interest products. “If they have not done so, they should be looking at it now,” he adds.
The amount of money needed to retire depends on a range of factors, including lifestyle, health, and family obligations. According to the Association of Superannuation Funds of Australia (ASFA), a peak industry body for the nation’s super industry, singles retiring at 67 need $595,000 in savings and couples $690,000 at retirement to support a “comfortable” lifestyle.
But for investors with an appetite for risk, or a need to preserve capital, there could be opportunities, particularly younger people seeking higher short term returns to boost savings for home deposits, says Christine Lusher, director of Lush Wealth.
For example, according to Van Eck, an exchange-traded fund (ETF) specialist, January inflows into Australian-based ETFs set a record of more than $4.6 billion, with cash and Australian and international fixed income up by 25 per cent, alongside a rebound in gold equities. Fixed income and gold equities continued to gain momentum during February, according to its analysis.
Arian Neiron, chief executive of VanEck Asia Pacific, added that there had been a “near-complete” reversal in the “market leadership” of equities from the US to Europe. Neiron says: “Better-than-expected data from Europe, with the improving economic backdrop, supports a rotation into Eurozone equity markets, which are trading at lower valuations.”
Market analysis by AUSIEX, a trading platform, also shows local investors are reacting to short-term volatility by restructuring portfolios, with advised clients and self-managed super funds adding a broad range of stocks, including telco blue-chip Telstra, global industrial property heavyweight Goodman Group, and biotechnology giant CSL.
By contrast, non-advised investors focused on mining groups, such as Fortescue, Mineral Resources and BHP, according to AUSIEX, which accounts for one-third of wholesale share trading in Australia.
