Is the Media to blame for losses in super?

I have a strong belief that people make rational decisions when presented with accurate and reliable information.

It seems however, that If share prices fall in value, the media love to report this as a major financial event which should drive people into financial panic through fear of having their life savings wiped out.

If you think I'm about to have a go at the media for irresponsible reporting which is the cause of people losing money, then you are right. This is not something I write about lightly, as I work in an industry and an organisation which provides direct advice to over 50,000 superannuation members annually on a membership base of around 3 to 4 million Australians.

It's not the 50 odd thousand people annually we get to speak to personally that are in danger of financial suicide but those who don't seek advice and react to the media's reporting of doom and gloom when sharemarkets fall.

It's fair to assume that most Australians find superannuation confusing, complex and subject to constant changes by governments which creates uncertainty and mistrust. It's also true that most superannuation members do not understand how or where their money is invested through their superannuation fund. For most members, they receive an annual statement which shows a valuation of their superannuation at the start of the year along with details about contributions, insurance, fees, taxes and investment earnings ending in a closing balance which may be more or less than the opening balance. Most superannuation members do not take the time to read or understand the accompanying material which is normally attached to annual statements.

It is this group of superannuation members (the majority) which are most influenced by irresponsible media reporting. Let's take a look at a sample of media reports following the recent decline in shares prices that have occurred over the last week or so.

The Australian - 18th May 2012 - 'Australian sharemarket dives to 7 month low'

The Australian - 21st May 2012 - 'May shares rout puts super at risk of negative performance in 2011-12'

The Australian - 22nd May 2012 - 'Super savings savaged by sharemarket rout'

The Courier Mail - 19th May 2012 - 'Euro crisis wipes out Australian share gains for year'

Perth Now - 18th May 2012 - '$120b wiped off stocks in May'

Devonport Times - 18th May 2012 - 'Investors in 'panic mode''

The samples above represent just a small amount of media reporting available online over a few days. There is also the TV coverage and hourly news bulletins on countless radio stations spreading the word of doom and gloom.

This type of media reporting results in people making irrational decisions causing them to incurr real losses with their superannuation.

Let's look at what really happens with this type of media reporting.

The majority of employees are members of an industry or retail superannuation fund. All or most of these funds operate a 'default' investment option where, again, most of these members are invested. These 'default' options will normally have around 50% exposure to shares, both Australian and international. The most crucial point to note here is that all of these superannuation funds (or at least the majority) invest mostly into quality shares that we would consider as 'blue chip'.

When share prices fall, regardless of whether it is by 1% or 51% it is unlikely any 'blue chip' companies are going to go belly up and dissapear altogether. Commonwealth bank (CBA) shares are a good example. Trading over $60 per share prior to the GFC in 2008 they fell to around $25 per share in March 2009. This fall in their share price is reflected in a member's account balance. The fact is, the member still has the same number of shares, so providing you didn't sell at that point you would not suffer any actual loss.

The loss occurs when the member 'switches' their investment from the 'balanced' or 'default' option into 'cash' or similar investment option which is normally always available within any super fund.

Let's understand the implications of this.

All of us who have been receiving employer contributions over the last 5 years would have been paying $60 per share for some of those CBA shares which are likely held in most every superannuation fund in Australia. If you make a decision to move your investment into 'cash' - that is the same as 'selling' your investment. If you sell when CBA shares are $25 then you incurr a real loss. If you do nothing you have the opportunity for those shares to recover. CBA is again a good example of this. After hitting a low in March 2009 they were back trading at around $54 in April 2011.

It will come as no surprise that superannuation funds across Australia recorded the highest number of investment switches from the 'default' investment option into 'cash' in the 3 months following the lowest point in the share market back in March 2009.

And this is where my point is made, that the media is to blame for the real losses being made by people in super. Why did superannuation funds process more investment switches between April and June 2009 than at any other time?

It was not because super funds sent out their annual statements showing members how their super had fallen in value. Super funds do not send out annual statements until well after the end of any financial year and most never before September of any year, so that can't be the reason.

The reason was because of the headlines I have sampled above. It's the way the Media report events which causes panic.

Did you ever see a headline like 'Beware the dangers of switching your super investment to cash during market falls'? Had there been more media coverage using this approach, less retirees and people in general would have suffered any losses.

Of course, there is no denying that share market falls or crashes can cause losses to those people nearing or at retirement but that is the subject of another discussion I have covered elsewhere on my blog.

For those people invested into the more widely used industry and retail superannuation funds, this article is about laying the blame on the Media for any losses that people incurred as a result of making investment switches at the worst time.

The regulators of our country have provided much to protect the public from those who provide financial advice and services. It time now for them to look at the Media and how they report.


Rob Bourne has been involved in the financial services industry for over 35 years. As a practising financial adviser he focuses on the need for practical and down to earth financial education. The aim is to educate people through financial education so they can take control of their own financial future. Visit Rob's website here for more information on business opportunities, investing and financial education or the complete guide to superannuation a...

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