Coronavirus panic: What share market plunge means for superannuation

The Aussie share market has copped a battering as a result of coronavirus panic – but this is how the crash could impact us all.

How will the crash impact your super? Picture: iStock

The Aussie stock market had its worst day since the GFC yesterday – and now, attention has turned to how that horror crash could impact everyday Australians.

According to consumer advocacy group Choice, global markets have been on a “rollercoaster” following the deadly coronavirus outbreak, which has sparked “dizzying highs and lows”.

That has led to a spike in worried members contacting their superannuation funds to find out whether their cash was safe.

Choice spoke with Scott Pape, the author of the popular Barefoot Investor books, who said there was no need to panic – and to resist the urge to meddle with your money.

“Do I think that people know how the coronavirus will play out? The answer is unequivocally no,” Mr Pape told Choice.

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“These tragedies impact people but they’re short-term health crises, not long-term financial crises. I wouldn’t be looking to financial experts to tell me what’s going to happen next.

“If you look at history, these tragedies impact people but they’re short-term health crises, not long-term financial crises.

“In the long term, we know the share market goes up.”

He said the market typically rebounds strongly after public health crises such as the ebola, SARS and swine flu outbreaks.

But he said it was a good opportunity to evaluate whether the risk level of your super is right for you, with younger people usually more comfortable with higher-risk strategies as their retirement is further away, while older people typically opt for a more conservative approach.

Scott Pape says downturns are actually good for younger people. Picture: Graeme Taylor/ Foxtel

One way to protect your super is to build up a “cash buffer” to keep some of your nest egg out of the ups and downs of the market, while another is to reallocate some of your super into a safer option like cash.

And the good news is, if you’re not retiring any time soon, a downturn is actually a good thing.

“Anyone under the age of 40 should be cheering the market going down,” Mr Pape said.

“The stock market’s on sale and we know the stock market always goes higher.”

Mr Pape said the most important way to protect your super was to make sure you’re not throwing away money in fees, which are “the one thing you can control”.

Mr Pape also spoke with Nova 96.9’s Fitzy & Wippa today and said the situation was more serious for people who were surviving off retirement savings now.

“For anyone who’s living off their retirement savings, this is shocking for them. Because if you’ve got money in term deposits you are literally going backwards, but (for) the people who are looking at getting a better deal on the home loans, we’re seeing rates at about 2.5 per cent which is incredibly low,” he said.

“So if you were stuck with anything with a 3 per cent in front of it you should be talking to your bank and trying to get a better interest rate.”

Meanwhile, IG market analyst Kyle Rodda said the situation was not good for people who had the bulk of their savings in the stock market – especially those wanting to draw on them in the short term.

“There is a massive revaluation going no in global equities at the moment and the global economy is likely not going to be as strong in future as it was expected to be, which will impact people’s savings and investments,” he said.

Mr Rodda said for those with a longer-term investment plan, it would be little more than an inevitable market “blip” which should “not necessarily keep you up at night” if you’re able to wait things out.

But it’s a different story for those with shorter-term strategies who are facing higher risks, and he recommended speaking with your financial planner to see how your financial goals could be affected in the short term.

“It really does depend how time sensitive you are – if you’re a bit older and you rely on this income now to support you, it’s important to call a financial professional to work out how this is going to affect your life going forward,” he said.

“But for those who are slightly younger who have not seen a financial crash or correction before, it could be a time of opportunity and a time to be quite active and level-headed.

“It’s the same thing for super – if you’re worried about your savings and it’s crucial to the way you live in the short-term, there’s likely to be a bit of a pinch, but if you’re in your 20s, 30s or 40s, it will make your super balance look reasonably ugly in the short to medium term but ultimately it’s a normal function of markets and hopefully you will get higher returns in the future and be able to grow your wealth. “