When The Stock Market Crashes – So Can Your Super

Stock market crash effect on super

A Brief History Of Stock Market Crashes…

It was Feb 2009 when the Global Financial Crisis hit rock bottom and the international stock market lost approx 50% from it’s Oct 2007 peak.  Australian Super funds took a massive beating.

People who were retiring at that time were hit the hardest. Some had to accept the massive losses in their Super funds (and retirement lifestyle) because they were unable to continue working.

Others were forced to hold off retirement and work for a few more years, and some people who already retired, had to go back to work or face significant lifestyle losses.

It was an incredibly difficult time for anyone planning for, or recently retired.

It wasn’t until November 2013 that the global market finally got back to the October 2007 highs. The ASX200 (Australian index fund) didn’t fully recover until Jan 2020, right before the covid crash. That’s 6-13 years of recovery time.

Then in 2020 the covid stock market crash took another 37% loss in a 3 week period.  Once again hitting Australian super funds hard.  

Back in 2000/2001 the stock market took a beating after the dot com, tech bubble burst. 

It seems that every 7-10 years or so, the stock market takes a hit… and so do Australian Super Funds.  The current stock market climate has a lot of built in triggers for more potential crashes.

Stock market crashes make it incredibly difficult to plan and manage your retirement.

That’s the nature of the stock market – it’s volatile. And because the majority of Superannuation is held in Australian and International Stocks and Bonds (about 2 thirds) – when the stock market goes down, typically Super does too.

What Does Stock Market Recovery Look Like?

General professional advice during a stock market crash is to ‘hold on’ when the market goes down ‘because the stock market will bounce back’, and that is true. But how long does it take to ‘bounce back’?

It can years to recover from stock market crashes depending on where your money has been invested. On the ASX it took 13 years to return to the 2007 highs, and on the US stock market it took 5-7 years.
If you are close to retirement, that means you have to consider the market or face a possible disappointment when you do. Even if you are not ready for retirement, are you happy waiting several years for super to get back to it’s pre-crash levels?

If the pattern in the market is a major crash every 10 years or so, and it takes many years to recover – where does that leave your retirement plan?

Next time you talk to a financial adviser, accountant or Superannuation representative, a fairly reasonable question to ask is “How do I protect myself from stock market crashes, especially when I’m about to retire?”​

Your Superannuation Options Are Greater Than You Think

An article published by the ATO on 8th Feb 2024 titled ‘Latest annual stats show the SMSF sector continues to grow’ reports these facts:

– 1.1 million Australians now manage their own super in over 610,000 self managed funds.
– On average SMSF’s had assets of almost $1,500,000 per fund
– Over a 5 year period, there was a 23% increase in women and 19% increase in men managing their own super.

There are more people than funds, which shows that couples are combining their super to supercharge their retirement plan.

A simple google search will report that the average Australian retires with approx $260,000 to $340,000 in superannuation by the age of 65. But self managed super funds have an average of $1,500,000.

Of course, these are both averages, but that’s still a big difference.

With more people moving to self management of their retirement funds, you would have to ask yourself, ‘am I missing something here?’

Property In Superannuation

An investment property can be a viable option inside a super fund.  Many Australians have owned property and understand the growth potential, rental potential and general costs.  So considering a property is quite familiar to most people.

Property does have market cycles, but typically in different to the stock market.  In a property market decline, it’s rarely nationwide, or as sharp and deep as stock market crashes. Even then you still have rental income taking the sting out of property value losses.  And if ‘buy and hold for 10yrs+’ is your plan, then we can all point to properties that we have owned or know about that have done very well in that time.

The biggest benefits of property in a super fund is the ability to borrow money within a super fund (Leverage). It’s a compelling thought to use $250,000 from your super as a deposit for a property. There is a considerable difference on 7% growth of $250,000 traditional super fund versus 7% on a $550,000 property over 10 years.
Aside from market cycles and growth, there are many unique benefits of property in a super fund:
– You contribution (and possibly your partners contribution) could be used to pay down the investment loan alongside the rental income
– Superannuation tax rates as opposed to personal tax rates
– More retirement options (Hold and collect rent within the fund, sell and use the equity as you desire or sell from your fund to yourself)
​And there are many more benefits that a qualified accountant can advise you on.

How do you plan on moving into retirement if you have a stock market based retail super fund?  Is it worth considering property for your super fund?

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