As inflation bites and interest rates rise, our precious super may not be worth as much as we think

Regardless of what you think its value is, there is some truth to the old adage that something is only worth what someone else is willing to pay.

But there are many ways to manipulate a price that gives way to another equally old maxim, coined by Oscar Wilde: a cynic knows the price of everything and the value of nothing.

As global stock markets have slumped in recent months – with severe falls across the globe after interest rates began their ascent – ​​many big-name investors have been left nursing near-fatal wounds.

In Australia, this translates into losses in our $3.2 trillion national savings pool – pensions take the bulk of our workforce squirrels every month through our mandatory pension system.

For the first time in over a decade – since the global financial crisis – most of us will be disappointed to learn that our super savings have dwindled.

Despite a torrid year for aviation, Qantas Super Gateway was one of Australia’s best performing funds.(AAP: Mick Tsikas)

Only three balanced funds have managed to break into the black this year – Hostplus, QANTAS Super Gateway and Christian Super – and even then they barely crossed the line, with the former having a meager 1.6% return.

In the rest, the median result was a decline of 3.1%.

Terrible news. Except, given what’s happened over the past six months, it’s actually an amazing result, almost too good to be true. In fact, it may be too good to be true.

Did we escape a train accident?

Let’s just count the pain, okay?

Most of it was delivered during the second half of the year.

The MSCI World Index, which measures the performance of stocks in 47 countries, fell 20.6% in the June half. This is the worst performance since the measure was created in 1990.

The back of a man's head looking at an ASX sign
Investors have seen tech stocks pull global markets lower in recent months.(Reuters: Daniel Munoz)

Tech stocks were among the hardest hit, with many big US names down more than 30% and some down double. The same was true for anything that contained only hopes of future profits or companies that were too indebted. The Buy Now Pay Later team has been transformed into Costing Now and Not Paying at all.

Then there are the obligations. They are debt securities – essentially IOUs issued by governments and large corporations – that trade on open markets, much like stocks. The only difference is that the bond market is infinitely larger than the stock markets and far more important.

Normally, when equities take a hit, bonds do well. Not this year.

The most traded global bond – which also happens to be the global benchmark for interest rates – is the 10-year bond issued by the US government. It has just recorded its worst performance since 1788, the year Captain Arthur Phillip sailed to Port Jackson to establish a penal colony.

There was even less joy among cryptocurrencies, down 61%.

I could go on, but you get the picture. Financial markets have been in a world of pain, thrown off balance by inflation, soaring interest rates and facing an uncertain future that may well have a big R attached.

So why did our Super hold up so well?

Aerial drone photo of the nearly empty city center bypass at Bowen Hills and Brisbane city skyline.
Some large super funds have diversified their investments into infrastructure projects such as the city’s toll roads.(ABC News: Marc Smith)

This is where the magic of valuations comes into the equation. Assets that are actively traded in open markets, such as real estate, stocks, and bonds, are easy to value. Prices change daily as buyers and sellers compete and it is easy to quantify their value.

But our pension funds have significant investments in assets and companies that are not listed or traded in the open. And so, evaluating them becomes an arbitrary process – a matter of opinion.

In the wake of the global financial crisis, our large super funds made a conscious decision to diversify their investments. It wasn’t a bad idea.

Caught off guard by the near collapse of the financial system and the carnage that erupted in the financial markets, many decided to put their money in stable, long-lived assets, where the income stream was relatively safe. economic ups and downs.

Leave a Comment

Your email address will not be published.