Australians Abandon Share Market For Super Funds

Yawn. Another day, another new high. But who is really making money?

“Australians are dumping traditional share market investments in favour of superannuation, in a mass movement of savings after Peter Costello’s generous rule changes for super,” reports Vanessa Burrow in The Age today.

Uh oh. Let’s see if we’ve got this straight. Investors have decided that instead of keeping their money in the bank, where it earns 5-6%, they will pay money managers to under perform the market in actively managed funds. According to the ASX, 46% of Australians own shares through managed funds or direct share ownership. That’s down from 55 per cent two years ago.

Meanwhile, the number of people with superannuation funds has gone from 64% to 74%. This virtually guarantees two things: huge inflows of cash into managed funds, and huge returns for asset managers who don’t have to work up a sweat to rack up fees and commissions. If you were astonished that Australian banks made $10 billion in fees last year, wait till you see what wealth management firms make in the next couple of years as they shuffle around all that super cash.

Why don’t people choose to spend more time managing their own money? “Instead of doing it themselves, they’re investing through superannuation and letting professionals run their portfolios for them,” says Saul Elaske of ANZ. Managing your own money takes time and thought. It’s easier to pay someone else to put some thought into it.

The trouble is, the bulk of professional money managers under perform the market. We won’t call them stupid or lazy (out loud.) We’ll just say that statistics show most fund managers are lunkheads. In a bull market, if you really want to be lazy, just buy a passively managed, index tracking fund and spare yourself the fees of active management.

All of this is going to come to grief sooner or later. The stock market is not a savings account. Your investments are neither insured nor guaranteed. And some things in your life are worth doing yourself. Only you will take your money as seriously as it deserves to be taken. If you expect otherwise, you AND your money will be taken for a ride.

Dan Denning
Markets and Money

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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2 Comments on "Australians Abandon Share Market For Super Funds"

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You forgot greedy. Stupid, lazy and greedy. The government mandated jobs scheme for fund managers is just another rort. Underperformance plus a lot of boomers wanting their super all at once equals liquidation, and a lid on the share market. New entrants to the super funds will decline comparatively, and so new money in will be less than old money out. My legally coerced but happily tax effective contribution is in the cash option at present. (they don’t have a gold option – but I keep asking)

Matt Hern
In the context of the statistics quoted by The Age it is important to remember a couple of facts about superannuation. Firstly, superannuation is just a legal structure with its own tax rate. With limited exceptions you can hold the same investment assets inside superannuation as you can outside of superannuation. So you can invest through super and manage your own money as suggested in the blog post. Secondly, a major reason you choose to manage your money within the superannuation structure is the generous tax structure. So, people putting money into superannuation does not guarantee any extra money into… Read more »
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