How panic selling cost Aussie investors thousands of dollars

Nobody likes a stockmarket crash, and new research by Aware Super has found just what the price of panic is for members.

The cost of panicking when financial markets crash is being laid bare for superannuation fund members and investors.

A new analysis by Aware Super has found a typical fund member who switched to cash when shares collapsed in March 2020 is now 33 per cent worse off than if they had ridden out the storm.

And thousands of its members who switched to the safety of cash during the Covid crash still had not switched back, with an average 45-year-old fund member losing up to $30,000 in retirement savings.

It’s a timely message as stockmarkets wobble amid worries over China, the US and energy shortages.

Aware Super group executive advice Sarah Forman said members of all super funds switched from higher-risk investments in 2020, although those who received advice were more likely to stay the course.

Investors and super fund members pressed “sell” in March 2020. Photo: Johannes Eisele/AFP

“Hundreds of thousands of people across Australia switched to more conservative investment options when the market fell in the early stages of the pandemic,” she said.

“The sad reality 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.

“It’s important people realise their experience is a common one.”

AMP Capital head of investment strategy Shane Oliver said when markets collapsed and investors panicked and sold out, it often took them about a year to invest again.

“It takes a while for the simple reason that in the initial part of the recovery people don’t believe it – they think it’s just a dead cat bounce, and 50 per cent of commentators are saying the same thing,” he said.

“Many people don’t get back in until the sharemarket is at its previous high or above it.”

Dr Oliver said unless investors had a good process for selling out then buying back in at the right time, “you are better off not trying to time the market”.

He said there was no easy way to recoup losses, and strategies such as investing more than your initial investment and hoping it would grow meant taking on more risk.

Australia’s sharemarket has dropped about 6 per cent from August’s record highs and remained volatile amid global financial worries, and Dr Oliver said the risk of a bigger fall was “significant”.

Aware Super’s Sarah Forman says professional advice helps revent knee-jerk reactions.

“But I wouldn’t want to put a probability on it,” he said.

September and October were typically troubling times for shares ahead of a run-up before Christmas, and Australian shares had fallen in eight of the past 11 Septembers, Dr Oliver said.

Aware Super’s Ms Forman said getting professional advice could help people reset and rebuild their nest egg.

“Recent experience has shown that a negative return is likely about five times in every 20 years, so staying the course is important,” she said.

Some people’s losses in super were magnified by withdrawing money through the government’s Covid early release scheme.

“Our research suggests those who withdrew the maximum $20,000 could have foregone investment earnings of as much as $5500,” Ms Forman said.

HOW TO DEAL WITH SHRUNKEN SUPER

• Go easy on yourself and don’t lose heart, because hundreds of thousands of Australians are in the same position.

• Don’t let past decisions cloud your judgment, and examine your financial situation with fresh eyes.

• Keep an open mind and review your investment strategy.

• Take a long-term view and make sure your super is tailored to your needs – you may not need to access it for decades.

• Seek professional advice and guidance, which may help you ride out the next storm.

Source: Aware Super