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Superannuation: look to the long term

Every Issue

Cite as: (2009) 83(02) LIJ, p.82

The 24-hour news media is not a good barometer for measuring the benefits of an investment with a 40-year timeframe.

The heightened anxiety many of us feel toward investment markets at present may have less to do with the severity of the events taking place – and they are severe – than with the way they are being reported.

A lawyer I know said recently he had decided to stop reading the financial pages of the daily newspapers as all the reportage on the global financial crisis was making him anxious.

While a total avoidance strategy may assist some, having access to the right kind of information is always beneficial. If more of that information were available, a better balance could be achieved against the current noise and hysteria.

Media reporting of the crisis has been characterised by confusion and some over-dramatisation. Unfortunately, this is the nature of our media.

Daily news is naturally short-term focused. Papers, television and radio newsrooms operate on a 24-hour cycle so what’s news one day is old the next. This generates a high turnover of stories, in turn driving the need for more analysis and speculation. Unfortunately, instead of clarification, the final result is often obfuscation.

On several occasions this year, headlines and copy on consecutive days have reported on markets plummeting, markets surging, followed by markets plunging. It can be a roller coaster ride – no wonder people are feeling unsettled.

In contrast to the 24-hour news cycle, investments such as superannuation, for most people, have a timeframe of 40 years. In this context, daily reports on the amount super funds and other investments have lost or gained are simply unhelpful. What needs to be considered are long-term trends, principles and, if they arise, deep-seated issues.

Here are thoughts to keep in mind while you continue to follow – or not – the financial events that are still unfolding.

First, it is worth noting that we continue to be in the middle of the financial crisis. From within any financial storm events always appear more chaotic and dangerous than they are, largely because the level of attention the media is giving to reporting the event is so much greater. From the crash of ’87, you will remember that events felt similarly chaotic. Looking back, 1987 now seems like a small blip in the past.

Second, nobody really knows how long the current crisis will last or what its full short-term impact will be. What we do know, however, is the history of similar events.

It’s worth noting, for example, that in the past 40 years the Australian stock market has had 13 downturns of varying amounts.

Over the same period the market grew at an annual average of 7 per cent. Since the crash of ’87, nearly all major sharemarkets globally have recovered after periods of decline. And in the past 30 years the average market decline lasted nine months, some less, some more.

Last, it’s worth remembering that superannuation funds have strong corporate governance procedures and investment decisions are based on reliable, safe and proven long-term investment principles.

While all investments will be buffeted during short-term events, long-term principles are unlikely to be undermined. For example, while legalsuper continues to monitor investment performance throughout this period, to date it has made few changes to its investment portfolio.

This is because the foundations on which these investment decisions were formulated remain sound for the long-term.

Feeling anxious about the current financial turmoil is a natural reaction, but it can be exacerbated by our media environment.

If you can rise above the noise and focus on the principles that really matter you will put yourself in a better frame of mind to plan for your financial future.


ANDREW PROEBSTL is chief executive of legalsuper, Australia’s largest super fund dedicated to the legal profession. He can be contacted on ph 9607 9401 or aproebstl@legalsuper.com.au or see http://www.legalsuper.com.au.

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