Scarcely a week passes these days without hearing another story of heart breaking loss of retirement savings. There have been so many stories of poor financial advice, exorbitant fee structures, corporate collapses and blatant fraud, that many are losing confidence in the superannuation industry.
Sadly such losses are almost always irreversible, even when fraud is involved, in spite of appeal to the regulatory authorities. This is why many Australians are adopting a more hands-on approach to their investments. It has been recently estimated that 40% of superannuation money is now housed within self-managed superannuation funds, in spite of the cost of set-up.
Whether your superannuation money is housed within your own fund, an Industry or other Fund, you should remember that there may be better ways to save for your retirement. For example, in recent years capital appreciation of one’s own home has yielded superior returns to superannuation, and in a more tax-effective way.
It is not suggested that you should terminate superannuation policies and plans in which you have confidence, and which are providing reasonable compounding profits. Nor should you adopt a total DIY mentality. It may be worth-while however for you to take a more intelligent, and active role in the planning and supervision of your retirement funds. In doing this you should not neglect to seek the advice of a qualified financial adviser.
I have found it best when no longer working to:
- Avoid the uncertainties of trading, especially when it involves derivative products.
- Manage a portfolio of quality stocks. This maximizes and compounds returns in positive markets.
- Increase cash holdings, and fixed investments, whilst reducing gearing, in bearish market conditions.
- Harvest available capital gains in market spikes, irrespective of capital gains tax implications. Better to pay half your marginal tax rate on the profit before sellers erode it for you.
- Not try to be smart and sell short, but to promptly sell down any stock whose share-price is falling. If it is a quality stock and the fall bottoms out and starts to recover, you may be able to buy a larger shareholding much more cheaply at a later date. In the meantime you have preserved capital that can be deployed more profitably in other ways.
- Be fussy when it comes to selecting stocks for your portfolio. After all there are approximately 2200 stocks listed on the Australian Stock Exchange (ASX), of which roughly 80% will never generate a return for shareholders.
- Set yourself standards to be met unless there is good reason to make an exception, before investing. For example be wary of holding onto any company that keeps returning to shareholders for more capital. Preferably chose businesses you understand and have confidence in the management.
- Do not presume that any company delivering you an exceptional return will necessarily do so again. After all, lightning never strikes twice in the same location. On the other hand if you have sold down your shareholding in a quality stock whose price is continuing to rise, there is no reason why you should not re-enter. After-all it is the start of a new investment to be monitored like any other share-holding.
- Save your accountant a headache, and yourself a higher fee than necessary, by keeping meticulous records and the necessary documentation. I keep a spreadsheet for updating my portfolio after every transaction. This keeps tally of the cost of each acquisition and simplifies the calculation of my capital gains at the end of the financial year.
- Above all be as well informed as you possibly can, and always do your own research rather than depend uncritically on the advice of others, no matter how expert they may be.
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