Market turmoil bites into super funds
PETER HARLEY is feeling like a lucky man.
With superannuation funds taking a battering with the ongoing volatility of the stock market, he's pleased he has diversified his investments and is not solely relying on a managed super fund for his retirement income.
However, not everyone has been so fortunate.
“Some of my friends are finding it hard. While 10 years ago you could live on $500 a week, now they're really struggling to live on that amount, or even $1000,” Mr Harley, of Lismore Heights, said.
Retirees these days expected more out of life and with everything so expensive, people he knew were not able to live the lifestyle they had expected to enjoy.
Mr Harley has a background in real estate and property development and is managing his own super fund, as well as other investments in property.
He retired 13 years ago and while he is largely protected from market trends, he's still had to alter his lifestyle.
“I won't be going on so many holidays and I'll be cutting back on luxury items,” he said.
Global markets have been in turmoil this week, following US investment bank Lehman Brothers filing for bankruptcy, the fire sale of rival Merrill Lynch and concerns over the financial viability of re-insurer AIG. Yesterday, Australian stocks closed lower as investors continued to fret.
For some time the income of self-funded retirees has been partly protected in the high-interest rate climate, but the continuing market uncertainty is now hurting this group as well.
Summerland Credit Union chief executive Margot Sweeny warned super funds would be bruised by the big losses on the stock exchange.
“Super funds generally invest in a diversified range of investments from low-risk to high-risk,” she said.
“No doubt some of their high-risk portfolio might be invested in institutions such as Lehman Brothers, although it should be emphasised that these types of equity investments should be seen as a long-term strategy to ride out the ups and downs of the market.”
Workers who planned to retire within a few years were looking at the prospect of working longer.
Summerland Credit Union financial planner Jason McFadden said the last few days had been a rough ride for investors in share markets, with fear and greed feeding trading. And some super fund investors would be hit harder than others.
“The hardest hit will be investors with shares and property-based investments,” he said.
“We've already seen a Coffs Harbour-based debenture and mortgage fund go into liquidation because of some global pressures and the general downturn in the property market.”
He advised investors to reconsider their investment strategies and spread their funds around.
“Put the money into different asset classes such as shares, property and cash. Those superannuation investors who structure their portfolio accordingly will be in the best position to ride out the volatility,” he advised.
Mr McFadden suggested placing two or three years' of cash flow into cash-based investments and putting the remainder of funds in a mix of investments.
“This type of strategy will tend to pay off over the longer term,” he said.