Superannuation Investment Choice

im sorry but the fact that the market has a long time to recover this short term loss just means the loss maybe isnt a bad thing. it isnt a good thing though surely?

so if a loss is a good thing then is a gain a bad thing? ultimately a loss is a loss is a loss. by definition it means that you have less money now than in the past and it's not a good thing, otherwise everyone would be doing their level best (and probably succeeding with a close to perfevt success rate)

 

let';s say you have 500k in super, have been hoping for say 10% growth, contribute 30k in concessional contributions and say another 70k in NCC, to make things easy.

unfortunately the market drops and instead of expecting to see that 600k in capital go up to 660k, you are left with maybe 540k, due to a 10% drop.

youre saying this 120k difference is a good thing?

 

First of all, We were referring to someone who has super in their 30s.

Secondly there is no 'loss', certainly not in the realised sense.

Lets substitute VAS for Super. VAS is currently around $70 per share. Back in January it was $60. In 30 years time it may be hmm.. $400. Much better to be buying VAS at $60 or $50 etc now than $70 when selling in 30 years time at $400

 

Price volatility is not loss. If the holdings were in cash, well yes that's an entirely different matter!!

 

of course it is loss. maybe not for you as a unit holder but certainly for the vehicle that you own units in. it's like investing in a private company and it losing money. sure, i might not have sold my shares in the company and realised a loss but the loss is real and the % of the company i own is now worth less than it was last year.

i could be wrong but i believe VAS ETFs are rebalanced quarterly or half yearly, so by definition losses or gains are realised between 2-4 times a year. also, even if this wasnt the case, a loss is a loss and it is not a good thing, we all have finite capital and having less capital than more is usually not a decision someone does cartwheels about.

the principle is the same at any age. so drop the figure to 170k (not unreasonable in any way for someone in their 30s), and add in the 30k concessional contribution. using the same figures it still leads to someone having 200k initially and ending up with 180k vs 220k.

i dont disagree with you that a long term approach should often be taken and that over time a small loss now might be inconsequential but i see no reason why it is a good thing. if it's a good thing is it something you hope or aim for? im assuming not.

there's a big difference between "not the end of the world" and "this is a good thing" and losing money is probably not the latter imo.

 

that;s a matter for debate and i do also agree with what youre saying.

what im trying to find out is how a loss is a good thing. are you personally happy if your entire portfolio drops in value or would you prefer it to go up?

 

I don't know how else to explain it @sanj. I'd prefer to accumulate when things are cheap rather when expensive.

edit

Found this from Warren Buffett

Superinvestor Warren Buffett offers a handy perspective with an edible analogy in his 1997 letter to shareholders:

If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves. But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Your time frame matters a lot here, as Buffett noted. If you're still in your adding-money-to-your-investments phase of your life, as most of us are for decades, then lower prices are a good thing.

Why a Stock Market Crash Can Be a Wonderful Thing -- The Motley Fool

 

I understand where Radson is coming from and your question is also fair.

It really comes down to how/why one invests. For me; I am buying current and future income streams. If price volatility ("loss") allows me to buy the same asset, at a higher yield (essentially buying more of it ) then yes, I am a happy man. Once (if?) you are able to look past price and focus on earnings then you will revel in price volatility. This is where Radson is coming from. Price becomes important when you are looking to sell assets for income or other use. Otherwise earnings yield, or dividend yield is the focus. This is my view, but my horizon is very long term.

 

I for one saw stocks in our portfolio plummet 30%, 40%, 50% ... during the GFC. I also witnessed something similar with our share fund holdings during the 87 crash. Some of the happiest times during my many years of investing for reasons explained above.

 

Until the shares keep going down past 50%... 80%, 90%, then bust, as what happened to a bunch of banking shares I held at the time. The ones that did survive never recovered to pre-GFC prices. I did average down in a few banks after they dropped 90%, takes a lot of nerve though, prices still way below pre-GFC. Bank shares.. no thanks.

 

Using ShareSight

CBA peaked at $61.50 in 2007 and now $76. CBA up 16.41% p.a over last 10 years

ANZ peaked at $30.65 in 2007 and now $25. ANZ up 7.9 % p.a over last 10 years

WBC peaked at $29.85 in 2007 and now $30. WBC up 13.46% p.a over last 10 years

NAB the worst at $44 down to $25 is still up 4% p.a over 10 years

..and thats basically buying at pre GFC peaks....oh and doesn't include franking credits

 

Yep, can happen. Some might suggest a quality filter but even with this the GFC caught many out. But I don't consider myself smart enough to select the best quality stocks. Hence why for me personally I place a lot of importance on diversification and not having too much exposure to a single direct stock.

Fortunately the larger part of our holdings are LICs including those that don't hold large caps such as the major banks and miners etc. Single stocks can go bust but widely diversified, conservatively managed Listed Funds are far less likely to do so. May or may not be the optimal approach but I need to be able to sleep well during these events.

It is staggering though how many investors (eg SMSFs) have the bulk of their savings invested in just a handful of large cap stocks such as the major banks, BHP, TLS and WOW. Not something I would feel comfortable doing.

 

Banking shares I lost in were Swiss and British, which I bought while working in the respective countries, lured by the pre-GFC high dividend yields. Most global banks were hammered similarly. Yes Australian banks have recovered but it shows how fragile banking institutions are. Swiss bank shares are still down 85% 8 years after CGF. I averaged in when down 90% and got out when recovered to 70% down so not too bad still lost though.

UBS (Switzerland) - peaked 2007 around 85 CHF, now 13.50 CHF
Credit Suisse - peaked around 75 CHF, now 11.30 CHF

UK:
HSBC - peaked at 8.30, now 5.30 pounds
Lloyds - was 6 pounds now 0.50
Barclays - was 8.20 now 1.50
HBOS - bust
Bradford and Bingly - bust
Northern Rock - bust

 

I dont think this helps your POV in any way, the above figures are outstandingly crap returns and a waste of an entire decade and whatever capital was tied up.

 

@sanj how is CBA at 16.41% p.a crap and that's not including franked dividends...and thats buying at GFC peak? Even 4%p.a plus franking credits is not bad in todays environment

 

Shows the power of the oligopoly when even a disgraceful shambles like NAB returns some 6% pa TSR + franking over 10 years despite GFC and then doing their best to destroy shareholder value along the way!

Australian and Canadian large banks approach no brainer due to the oligopolistic rackets they operate in. Outside that, its about quality like Wells Fargo and JP Morgan...that's about it!

 

Here's how a non-typical superfund buys property and will continue to yield great returns to its members through selective acquisitions and redevelopments. CBUS buys state in David Jones Flagship (with Scentre).

 

Consider it a periodical sale. Do you want the opportunity to buy something at a discount price even though you've purchased it at full price in the past?

Of course you would but the assumption is that the underlying value does not change, only market sentiment.

You've lost money on paper only.

 

Are you trolling mate?

 

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