Your money | Financial industry, Economic & Stock markets

Shares are falling and so are super balances but dont overreact

YOU must be living under a rock if you haven’t noticed world sharemarkets tumbling this year.

The Australian Stock Markets All ordinaries index alone has fallen more than seven per cent since January 4.

But while were often told to get our heads out of the sand and stop being apathetic about our super, at times like this a useful strategy can be to simply do nothing.

Its true that most super funds have at least 50 per cent exposure to equity markets but, for the past few years markets have been rising strongly so the more equity exposure the better the returns.

Thats why, no matter what stage of life you are at, it is important to remember that super is a long-term investment and any adjustments to super strategies and investments should be taken with that in mind.

To put it in perspective, since the falls of the global financial crisis, super funds have bounced back by more than 80 per cent, says Jeff Bresnahan, chairman of research house SuperRatings.

So all the panicked super investors who fled the markets after they tanked in 2008, dumped their money in cash and never returned have missed out on all of that growth.

For the median balanced super fund in Australia, where up to 70 per cent of us in major funds are invested, returns fell 2.1 per cent in January, SuperRatings found.

Combined with losses last year these funds are down almost 1 per cent this financial year and if markets remain volatile theres a good chance fun performance will be down on average for the year.

But over the past five years the median balanced fund option has grown by, on average, 7.5 per cent a year.

By all means check how your super fund is invested and adjust your long-term strategy if needs be but dont overreact to sharemarket volatility, says Bresnahan.

You are going to lose money once in every six years in a balanced fund option, he says

Paul Schroder, group executive of membership at Australian Super, on of the nations largest funds agrees that panicking and switching out of equities is not the way to go.

In many cases its more risky to switch when markets are volatile, Schroder says.

The thing people can do is try to ensure theyre in a fund that has traditionally performed well and has low fees because that will make the biggest difference over time.

Tax man targets super scammers

“AGGRESSIVE” superannuation schemes that promote ways for pre-retirees to dodge tax on their nest eggs are being targeted by the Australian Taxation Office.

Over-50s and people with self-managed super funds are in the sights of a new wave of super spruikers who have followed the footsteps of property spruikers by promising unrealistic benefits.

They often promote activities such as dividend stripping, illegal borrowing arrangements and illegal income diversion. However, the price of following their advice can be as harsh as losing almost all of your nest egg in penalty taxes and other fines.

Launching a new ATO campaign to stop the scammers, ATO assistant commissioner Michael Cranston says several aggressive schemes have been operating in the past 18 months.

We are seeing pockets of them popping up. We are really worried about the schemes that get promoted often the people who get involved can really get hurt, he says.

Cranston says older Australians spend years saving for retirement and when things go wrong later on its very hard to rebuild.

He says spruikers will approach pre-retirees or their accountants and make it all look pretty good.

Were trying to stop the scams dead, before they grow.

The ATOs new Super Scheme Smart program includes a new website, information packs and videos, and sending out taxpayer alerts about the schemes it spots. It wants people to report tax avoidance schemes confidentially by calling 1800 177 006 or emailing this site

There are plenty of legal ways to use the tax rules to improve your retirement savings. The ATO says the illegal ones often have common features such as being contrived and complex, involving a lot of paper shuffling, and appear designed to leave you with zero tax payable or even a refund.

If it looks too good to be true, it probably is, Cranston says.

The SMSF Association has welcomed the ATO move and managing director Andrea Slattery says it should help protect people from fraudulent advice and inappropriate tax schemes.

The overwhelming majority of advisers in the financial services sector play by the rules, but sadly there is a minority element of spruikers that prey on the vulnerable by offering them risky schemes, she says.

Getting high-quality professional advice is the best insurance to ensure individuals and SMSF trustees avoid becoming a victim of fraudulent behaviour.