It’s September and spring is here, providing a welcome lift in spirits. After some spectacular performances by our athletes at the recent Tokyo Olympics and Paralympics, hopefully you are inspired to achieve some personal goals of your own.
In this edition, we discuss ‘Investment lessons from the pandemic’ and provide you with information on ‘Don’t take super cover for granted’ and discuss ‘Not feeling yourself? You may be languishing’.
If you would like to discuss any of the issues raised in this newsletter, please don’t hesitate to contact us.
In the meantime, we hope you enjoy the read.
Additionally, find below our Economic Update:
August provided mixed economic news, with central banks, business and consumers remaining cautious. In a widely-reported speech, US Federal Reserve chair, Jerome Powell said there remained “much ground to cover” before he would consider lifting interest rates, sending stocks higher and bond yields lower.
In Australia, shares and shareholders were boosted by a positive company reporting season. According to CommSec, of the ASX200 companies that have reported so far, 84% reported a profit in the year to June, 73% lifted profits and dividends were up 70% to $34 billion. One of the COVID “winners” is the construction sector. While the value of construction rose 0.4% overall in the year to June, the value of residential building was up 8.9% and renovations rose 24.5%, the strongest in 21 years. One of the COVID “losers”, retail trade was down 3.1% in the year to June.
While unemployment fell from 4.9% to 4.6% in July, full-time jobs and hours worked were lower due to the impact of lockdowns. The Westpac-Melbourne Institute index of consumer sentiment fell 4.4% in August while the NAB business confidence index fell 18.5 points in July, the second biggest monthly decline since the GFC. Wages grew 1.7% in the year to June, well below the 3% the Reserve Bank wants before it considers lifting interest rates.
Iron ore prices fell 18% in August, while the Aussie dollar finished the month weaker at US73.2c.
Investing lessons from the pandemic
When the coronavirus pandemic hit financial markets in March 2020, almost 40 per cent was wiped off the value of shares in less than a month.i Understandably, many investors hit the panic button and switched to cash or withdrew savings from superannuation.
With the benefit of hindsight, some people may be regretting acting in haste.
As it happened, shares rebounded faster than anyone dared predict. Australian shares rose 28 per cent in the year to June 2021 while global shares rose 37 per cent. Balanced growth super funds returned 18 per cent for the year, their best performance in 24 years.ii
While every financial crisis is different, some investment rules are timeless. So, what are the lessons of the last 18 months?
Lesson #1 Ignore the noise
When markets suffer a major fall as they did last year, the sound can be deafening. From headlines screaming bloodbath, to friends comparing the fall in their super account balance and their dashed retirement hopes.
Yet as we have seen, markets and market sentiment can swing quickly. That’s because on any given day markets don’t just reflect economic fundamentals but the collective mood swings of all the buyers and sellers. In the long run though, the underlying value of investments generally outweighs short-term price fluctuations.
One of the key lessons of the past 18 months is that ignoring the noisy doomsayers and focussing on long-term investing is better for your wealth.
Lesson #2 Stay diversified
Another lesson is the importance of diversification. By spreading your money across and within asset classes you can minimise the risk of one bad investment or short-term fall in one asset class wiping out your savings.
Diversification also helps smooth out your returns in the long run. For example, in the year to June 2020, Australian shares and listed property fell sharply, but positive returns from bonds and cash acted as a buffer reducing the overall loss of balanced growth super funds to 0.5%.
The following 12 months to June 2021 shares and property bounced back strongly, taking returns of balanced growth super funds to 18 per cent. But investors who switched to cash at the depths of the market despair in March last year would have gone backwards after fees and tax.
More importantly, over the past 10 years balanced growth funds have returned 8.6 per cent per year on average after tax and investment fees.ii
The mix of investments you choose will depend on your age and tolerance for risk. The younger you are, the more you can afford to have in more aggressive assets that carry a higher level of risk, such as shares and property to grow your wealth over the long term. But even retirees can benefit from having some of their savings in growth assets to help replenish their nest egg even as they withdraw income.
Lesson #3 Stay the course
The Holy Grail of investing is to buy at the bottom of the market and sell when it peaks. If only it were that easy. Even the most experienced fund managers acknowledge that investors with a balanced portfolio should expect a negative return one year in every five or so.
Even if you had seen the writing on the wall in February 2020 and switched to cash, it’s unlikely you would have switched back into shares in time to catch the full benefit of the upswing that followed.
Timing the market on the way in and the way out is extremely difficult, if not impossible.
Looking ahead
Every new generation of investors has a pivotal experience where lessons are learned. For older investors, it may have been the crash of ’87, the tech wreck of the early 2000s or the global financial crisis. For younger investors and some older ones too, the coronavirus pandemic will be a defining moment in their investing journey.
By choosing an asset allocation that aligns with your age and risk tolerance then staying the course, you can sail through the market highs and lows with your sights firmly set on your investment horizon. Of course, that doesn’t mean you shouldn’t make adjustments or take advantage of opportunities along the way.
We’re here to guide you through the highs and lows of investing, so give us a call if you would like to discuss your investment strategy.
ii https://www.chantwest.com.au/resources/super-funds-post-a-stunning-gain
Don’t take super cover for granted
Buying insurance through super has many advantages, but you need to make sure you are getting the right cover for your individual needs. In some cases, you may be paying for nothing.
Most super funds offer life and total and permanent disability (TPD) insurance to fund members and, in some cases, income protection cover.
But since the introduction of the Protecting your Super reforms in 2019, this cover is no longer automatic.
If you have less than $6000 in your account or it has been inactive, then the insurance component will have been cancelled unless you advised the fund otherwise. An account may be deemed inactive if, for example, it has not received a contribution for more than 16 months.
In addition, insurance cover is no longer offered to new fund members aged under 25.
Is it right for you?
If you do have insurance in your super account, then it’s a good idea to check the cover is right for you. This is particularly the case now that the stapling measure has been introduced as part of the recent Your Future, Your Super legislation.
From November 1, unless you choose a new fund when you change jobs, the first fund you joined will be ‘stapled’ to you throughout your working life. This is where problems can arise; while the fund stays the same, so will the insurance cover.
Say you move from a low-risk job where the insurance offered in your super was more than adequate to a high-risk job such as in construction or mining. Would your insurance now cover you if you were no longer able to work? And if it did, would the cover be sufficient? It may well be that your new occupation is not even covered.
Most TPD policies within super are for “any” occupation rather than “own” occupation. This three-letter definition can make a world of difference. If you still have the capacity to work in some other occupation, then it is likely your insurance will not pay out.i
Many benefits
Despite this, there are still many benefits from having insurance cover in your super. Firstly, the premiums are generally lower because the fund buys the insurance cover in bulk. In addition, your premium payments are effectively lower as they come out of your pre-tax rather than your post-tax income.
What’s more, you are not having to put your hand in your pocket to pay the premiums as the money automatically comes out of your super. Of course, the flipside is you will have less money working to build your retirement savings.
So, when it comes to taking out insurance, going through your super has lots of positives.
But the downside is that the default level payout may be lower than you might need. You should check if this is the case and maybe consider making additional premium payments to give yourself and your family more appropriate cover. Be aware though that opting for a higher payout could mean you have to undergo a medical.
Also, life insurance cover in super actually reduces over time to the point where your cover reaches zero by the time you are 70. And for TPD cover it ceases at 65.ii
Regular checks
Wherever you get insurance cover, it’s important to remember that its purpose is generally to cover any outstanding debt and ongoing financial obligations should you pass away or become unable to work.
For this reason, it is important to regularly check your insurance within your super to ensure it is sufficient to maintain your lifestyle.
If it falls short, then you might also consider taking out a policy outside super.
While income protection is sometimes available through your super, it may be necessary to look outside. Such policies pay you a regular income for a specified period if you are unable to work through an illness or injury, and premiums are tax-deductible outside super.
When you are leading a busy life with lots of claims on your income, insurance may be seen as an unnecessary expense. But when it comes to the crunch, it can play a valuable role in you and your family’s life when you need it most.
Please call us to discuss your insurance needs and whether your existing cover, both inside super and outside, is sufficient.
i https://moneysmart.gov.au/how-life-insurance-works/total-and-permanent-disability-tpd-insurance
ii https://thenewdaily.com.au/finance/dollars-and-sense/2021/08/02/insurance-life-tpd-superannuation/
Not feeling yourself? You could be languishing
Feeling a bit lacklustre as the days roll by? Hitting the snooze button more than usual? It’s a feeling that can be difficult to put your finger on, but it has a name, languishing.
Whether it’s feeling exhausted and unmotivated, or restless and eager to do more, we can be off kilter from time to time. It’s no surprise that many are feeling this way, as we continue to deal with ongoing uncertainty and snap lockdowns due to the pandemic. Knowing this is normal is important, particularly in the current circumstances, but we can also make changes to improve our overall wellbeing.
Flourishing vs languishing
Often, we think of good mental health as the absence of mental health issues, but as the diagram below shows, there is a spectrum between high mental health and low mental health.
While flourishing sits at the top, languishing is at the bottom.
Source: Dual continua model ( Keyes & Lopez , 2002)
You’re kicking goals at work, your relationships with family and friends are harmonious, you’re growing as a person – these are examples of flourishing. On the flipside, languishing can see you struggling to get out of bed in the morning, disengaged from your work, feeling negative about your relationships, or frustrated at not getting to where you want to be.
Called “the dominant emotion of 2021”, languishing has been described as if “you’re muddling through your days, looking at your life through a foggy windshield.”i
Moving towards flourishing
The pandemic has reminded us of how little control we have over external circumstances. While lockdowns are likely to remain in our near future and the way we work and socialise are impacted as a result, there are ways we can improve our outlook.
Take time out
Working from home and remote schooling has become a reality for many of us, meaning we are busier than ever. Scheduling in some time-out is crucial to being able to switch off and feel more refreshed. Even if it’s just a day spent not checking your email and doing something restorative, you’re prioritising self-care.
Start small
When you’re languishing, it can be difficult to get motivated, it’s not likely to be the time you embark on a new fitness regime, study or career move. However, starting small can make changes in your life while building motivation for you to make further changes.
Whether it is going for a morning walk each day, reading a book the whole way through or getting to one of those tasks on your to-do list, you’re taking a step towards flourishing.
Cut out the noise
Back-to-back Zoom calls, the 24/7 news cycle, pings of social media, the distraction of everyone being at home together – no wonder it’s hard to focus.
Tap into your ‘zone’ or flow, by switching off from external noise where possible to concentrate on one task at a time. When you’re in the state of flow, time flies by as you’re engrossed in an activity that takes your full attention.
Reach out for help
It’s also worth acknowledging when you need a helping hand. It may be delegating at work so you’re not feeling overloaded or having someone to talk to if you’re struggling through the day.
Mental health issues are on the rise due to the pandemic and there is no shame in asking for help – more than ever, Australians are reaching out for mental health support in these turbulent times to help stay on track.ii
i https://www.nytimes.com/2021/04/19/well/mind/covid-mental-health-languishing.html
ii https://www.lifeline.org.au/resources/news-and-media-releases/media-releases/
Bruce Moss & Transparent Wealth Pty Ltd ABN 25 526 615 157, Level 2/1 Elgin Place, HAWTHORN VIC 3122 are both authorised representatives of Synchronised Business Services Pty Ltd ABN 33 007 207 650 trading as Synchron. AFSL 243313, PO Box 438, North Melbourne VIC 3051 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.