Is Your Superannuation Strategy Backwards?

Investing can get complicated but the objective is pretty simple: “buy low” and “sell high”.  So why is it that so many people seem to do just the opposite?

SmartSalary is not licensed to give investment advice.  We do, however, process hundreds of millions of dollars of voluntary superannuation contributions every year, so we are able to see some clear trends.

And what we noticed was that as the stock market turned down in 2008/2009, people began stopping their voluntary super contributions. In fact, the lower the market went, the more people stopped contributing.

On one hand, this makes a lot of sense. Why keep putting your money into a fund that is losing money?  On the other hand, however, you can see that people were happy to buy when the market was at its highs but a lot less happy to buy when the market was much lower.  Thus instead of “buying low” and “selling high”, people were in effect doing just the opposite!

So what do you reckon?  What are your thoughts on this issue?  Which of the below categories best describes your thinking?

Leave a comment here

8 Responses to “Is Your Superannuation Strategy Backwards?”

  1. 1 Michael March 10, 2010 at 10:46 pm

    Where is the sensible option. The stock market has crashed so I’ll plough even more into super via salary packaging. I actually tried to INCREASE my packaged super when the market was down. Now it’s climbing I’m laughing (but gettin less units by the day. Ah well, role on retirement!

  2. 2 Magda March 17, 2010 at 8:36 am

    I don’t have a lot of faith in super. My balance keeps going down instead of up. Twice they’ve lost thousands.
    I don’t contribute. I’d rather take my extra money and invest it elsewhere in a less volatile market like real estate. At least that is guaranteed to rise over time.

    What really annoys me is that we have to pay tax on our super, yet we can’t claim losses as a tax deduction.

  3. 3 Glenys Curkoska March 31, 2010 at 7:33 pm

    I have continued to contribute to super so cant answer

  4. 4 Simon April 9, 2010 at 7:49 pm

    Superannuation as a retirement vehicle has an enormous “black hole” of funding shortfall. As a consequence of this, the laws will change to such an extent that by the time I am legally able to retire (at age 75 probably),superannuation will only be available as a pension.
    No lump sums will be allowed unless the beneficiaries pay a prohibitive amount of tax!

    One of the downfalls of the current superannuation system is that I am not able to lose my own money on the share market by direct share ownership and I get to pay for the privaledge by way of administration fees for someone to lose my money for me!

    As for the “super is backward” question, a continuous “buy” position that the legislation requires of all the funds is a mass psychological folly that is bound to cause more severe volatility over time until the funds run out of money.

    Good luck everyone that is leaving it to the experts and not undertaking any form of financial education!

  5. 5 Steve April 30, 2010 at 3:17 pm

    As well as dealing with wages and work conditions, most Modern Awards specify the superannuation funds to which an employer may make its Superannuation Guarantee
    Contributions and any additional post-tax employee contributions for an employee, unless an employee chooses another superannuation fund (i.e. the employer’s “default
    Fund”). In addition to a fund named in a Modern Award, an employer can use any superannuation fund to which the employer was contributing for the benefit of its employees on 12 September 2008 and any successor fund of it (where the former fund was wound up), as its default fund.

  6. 6 Alex May 5, 2010 at 10:28 am

    I think people have also grown more reluctant to put ANY money into super, as the government keeps changing the rules, shaking our confidence in the system. Just because something can give you a tax benefit now, does not mean they can diminish this benefit through other taxes before your retirement.

    I have little faith in the system now, and will plan for retirement through other means, as I have my doubt there will be enough money to pay out by the time I retire.

    I think this sentiment may be another reason for reduced contribution to superanuation.

  7. 7 Rob May 18, 2010 at 1:02 pm

    I must admit I’m more sceptical about super since the GFC. I’m in several retail funds some of which take fees of 2.9% off my total capital each year and have basically stood still for the past 5 years. My term deposits are performing much better than that (despite tax). And of course my tax dollars are being spent very wisely in my interests by the government (well, hopefully some of them are) whereas my super fees are simply lining the pockets of my so-called advisor (who has never been proactive and takes at least 4 weeks to respond to my requests). I’m thinking of switching to an industry fund and to get back to the original question, salary sacrificing in moderation.

  8. 8 Rob May 18, 2010 at 1:22 pm

    The fact that fees apply to the entire capital (not just gains) really reduces the tax effectiveness of super. To illustrate, if I put $100k into term deposit at 6% I make $6k, pay $2k in tax and keep $4k. Inflation is about 3% so I’m just ahead.
    If I had the same amount in super earning 6% through a cash asset I’d make $6k but pay more than $3k in fees (2.9% of the $106k), so I’m actually treading water after inflation. Where is the benefit in super?
    I know in theory it’s all about the long term and shares ‘should’ earn more than 6%, but when you think of the global situation it’s hard to see sustained growth like we saw in the decade or two before 2007. No wonder people are rushing to invest in real estate!

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Deven Billimoria
Chief Executive Officer

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