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The $30,000 stock market mistake 20,000 Aussies made

·3-min read
Money burning in a bowl
Australians who reduced the risk of their superannuation investment option have ended up worse off. (Source: Getty)

$30,000: That’s how much of your retirement savings a single moment of panic could cost you.

Australians who panicked during the COVID-triggered stock market crash in March 2020 and chose to put their money into a more conservative investment option missed out on tens of thousands of dollars, new research reveals.

According to research from Aware Super, Aussies that switched to cash and then didn’t switch back were 33 per cent worse off than those who simply did nothing at all.

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More than 20,000 of Aware Super’s fund members reduced the risk in their investment approach during the stock market shock, but then missed out on the stock market’s roaring recovery later in the year.

A member with a $100,000 balance at the beginning of 2020 who switched from the growth option to the cash option lost around $30,000, the super fund said.

Those who didn’t have access to financial advice were four times more likely to have switched their investment approach than those who received financial advice.

(Source: Aware Super)
(Source: Aware Super)

The research lays out the hefty price of panicking, with Aware Super executive of advice Sarah Forman reminding Aussies superannuation was a long-term investment and that markets always recovered.

”The sad reality though is that in times of market upheaval, many people panic and make defensive switches in their investment options, but as markets recover – and the sense of urgency has subsided – they can be slow to switch back,” she said.

Members put off switching their investment approach because they feel they’re busy with other matters to attend to, but the decision not to act is a costly one.

“Other times it can be caused by the phenomenon known as the ’sunk-cost fallacy’. This is where people persist with a strategy that’s unlikely to bear fruit because they want to justify a decision that has already proven costly,” she said.

What can I do?

If you reduced your investment option risk after the crash and haven’t changed it back, there are still steps you can take. While it may not entirely reverse all of the financial losses, it is better to act today than not at all.

“Go easy on yourself … Your experience is very common,” Forman said.

“Hundreds of thousands of Australians switched their super to more defensive investment options early in the pandemic and missed the market rebound.”

If you have a professional financial adviser, consult them first. If you don’t have one, get in touch with your super fund, many of which offer free general advice to members.

Small decisions with high costs

A series of small decisions made over a long period of time can be the difference between a modest and a more comfortable retirement.

Stockspot’s latest Fat Cat Funds report revealed an often-overlooked superannuation detail could see Aussies wind up paying $226,261 in fees that were completely unnecessary.

“Broadly speaking, the younger you, are the more risk you can take and the older you are, the more conservative your strategy should be,” said Stockspot CEO Chris Brycki.

More than a million Australians also received letters in their mailbox from their super fund confessing they were an underperforming fund, and advising them to move their money to a better-performing fund.

Thirteen funds overseeing a total of $56.2 billion failed to meet the prudential regulator’s benchmark, and these unlucky 13 had until 27 September to write to members about their failure.

The payoff of switching is huge: those switching from the worst-performing to a top-performing fund stood to gain an extra $660,000 by retirement, according to the Productivity Commission.

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