Protecting Your Superannuation
by Matthew Ford 19th January 2019 (first posted 17st
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All rights reserved.
Download the free software ProtectYourSuper2_1_12.jar
and pdf documentation.
Unhappy with your superannuation performance, this article describes how I took back control of my super, avoided losses and made more money. I use this simple method to give my superannuation protection against drops in the share market. All I needed to do was to select an appropriate super fund and to have access to the internet once a week, from the local library for example. I did not need to start my own super fund. I use the software provided here to give me superannuation protection.
Legal Disclaimer: I do not hold a Financial Advisor’s Licence and nothing in this article should be considered as recommending any particular course of action to anyone else.
There are only three (3) AustralianSuper finds that don't involve shares. Those are Property, Diversified Fixed Interest and the Cash fund. Previously ProtectYourSuper has used Property as the 'cash' alternative when not in 100% shares.
“Important information about the Property option
From Monday 19 November 2018 there is a cap on how much you can invest in the Property option and AustralianSuper has the discretion to freeze switches, contributions and withdrawals into and out of the Property option for a maximum of up to two years. A freeze will only be applied when we feel it is in the best interests of members and we will notify you as soon as possible after it has been imposed.
For more information please see Property option – additional information here.”
Read that page carefully for the details.
That makes the Property Fund a bit more risky, since it may be frozen for up to 2 years. However it has been returning significantly higher returns over the last few year compared to the Diversified Fix Interest or the Cash Fund. So I have choosen to keep using Property as a 'cash' alternative. 70% is the maximum AustraliaSuper allows for Property, so when ProtectYourSuper in not in 100% Australian Shares it will be in 70% Property and 30% Cash.
However given the
risks with Property, ProtectYourSuper will switch to 100% Cash if
a) the Property Fund drops by 0.5% OR
b) the share market drops by >10% OR
c) I have any worries about risks to my super
As at the 14th January 2019, the Share market has recovered above -10% from the last high AND the 11 day moving average is above the 33 day moving average, so ProtectYourSuper has moved from 100% Cash to 70% Property / 30%Cash
Download the Free Software (runs on Windows, Mac, Linux, Solaris)
Results for AustralianSuper funds since 1st July 2008
Summary of Results
Switching versus 100% Australian Shares since Jan 2000
My Switching Method
Step 1: Selecting the Super Fund
Step 2: Internet Access
Step 3: Deciding when to Switch
The Simple Moving Average Indicators (SMA)
Only use the Simple Moving Average Indicators when they Work
Deciding When the Switch: The Rules I Apply
Super got a lot of bad press after the 2008 GFC. Many people have seen the value of their nest egg drop dramatically. But it is not the Superannuation system that is the problem, rather it is where your money has been invested that has lead to the drop in value.
Many people are in the ‘default’ Balanced option that has a large exposure to the share market. This is good if the market is going up but not so good when it is going down. This article describes the simple steps I use to take back control of my super, stop the drop in value when the share market falls and still reap the rewards when it rises. I spend no more that a few minutes each week on it and I did it without starting my own super fund. I have been using this method since September 2010. Prior to that I was use two similar methods but with different rules. Those methods were not a good as the one presented here. (For a comparison of the methods see this discussion.)
See here for Detailed Examples of how I apply my Switching Method
Here is a comparison of ProtectYourSuper versus AustralianSuper Balanced and AustralianSuper Australian Shares funds. The returns for all three, over the last 10 years, has averaged about 7.3% to 8% but as the following chart shows, the variation from year to year is markedly different. The blue squares show the average return, while the vertical bars show the range of returns over the years.
Of the three ways of investing your superannuation, ProtectYourSuper has so far shown the least variation in returns from year to year. ProtectYourSuper gives me more confidence in planning my financial future.
I have made a program available which process the downloaded share index data and does the calculations for the three rules used in this method and advises me on when to switch. The program runs on Windows, Mac, Linux and Solaris. Installation and running documentation in pdf format is also available. This program also assists in starting to use the method by suggesting when to start switching. See the pdf documentation for details.
Before discussing the method in detail, let’s look at how it would have worked since 1st July 2008 (the earliest date AustralianSuper provides detailed data for).
The Green line is the ProtectYourSuper performance switching method described switching between 100% Shares and 100% 'Cash' alternative. Because the Cash fund return is so low, currently the 'cash' alternative I am using is 70% AustralianSuper Property and 30% AustralianSuper Cash, because AustralianSuper limits Property to 70% of your balance. But different 'cash' alternative have been used in the past, AustralianSuper Cash, AustralianSuper Fixed Interest, AustralianSuper DiversifiedFixed Interest.
The Blue line is the AustralianSuper's Share fund performance. The Red line is the AustralianSuper's Balanced fund performance. The Yellow (bottom) line indicates when the switches were made for the top Green line. It is high when 100% of the money is in Shares. These graphs were drawn using the data available on the AustralianSuper's web site.
The results shown here are for ProtectYourSuper using 11/33 values switching between AustralianSuper Shares and Cash between 1st July 2008 and 28th Dec 2011. Then between 28th Dec 2011 and 1st August 2012 I switched between AustralianSuper Shares and Fixed Interest. From 1st August 2012 to 2nd June 2014, the switches were between AustralianSuper Shares and DiversifiedFixedInterest. From 2nd June 2014 to 14th Jan 2019, the switches were between AustralianSuper Shares and Property, except for 26th August 2015 to 12th Oct 2015 and 11th Oct 2018 to 14th January 2019, when I switched to AustralianSuper Cash as a safety precaution.
Currently I am switching between AustralianSuper Shares and 70%
AustralianSuper Property / 30% Cash Fund. Since AustralianSuper can
freeze the Property Fund for up to 2 years, this 70/30 'cash'
alternative comes with the proviso that I will switch to 100% Cash
a) the Property Fund drops by 0.5% OR
b) the share market drops by >10% OR
c) I have any worries about risks to my super
Having convinced myself that this switching method performed well, I started using it in Oct 2010 with moving average values of 15 and 30. Prior to Oct 2010 I used other versions of this switching method, see Background to Protecting your Superannuation for more details. On 15th January 2012 I made a small adjustment to the moving average values I used changing them to 11 and 33. On 22nd November 2012 I revised the definition of profit in Rule 3 which resulted in noticeable improvements in the results.
The results shown here are for the 11/33 values switching between
AustralianSuper Shares and Cash between 1st July 2008 and
28th Dec 2011. Between 28th Dec 2011 and 1st
August 2012 I switched between AustralianSuper Shares and Fixed
Interest. From 1st August 2012 to 2nd June
2014, the switches were between AustralianSuper Shares and
DiversifiedFixedInterest. From 2nd June 2014 the switches
were between AustralianSuper Shares and Property, except
for 26th August 2015 to 12th Oct 2015 when I
switched to AustralianSuper Cash as a safety precaution.
Currently I am switching between AustralianSuper Shares and AustralianSuper Property.
So, in summary, a check of the Switching method over the last 15 years (since 4th July 2000) shows a relatively steady rise in value with low variability from year to year. However in the last few years the very low cash interest rate has held back the results and necessitated the use of an alternative to 'cash'. Currently this alternative is AustralianSuper Property. Australian Shares have recovered in the last 3 years but their volatility has mostly kept ProtectYourSuper out of shares.
AustralianSuper does not provide daily differences for prior to 1st July 2008 so to test the switching method back to January 2000, I had to use the ASX AllOrd index with no allowance for dividends. The chart below shows indicative returns for $10,000 invested in super in January 2000 using the Switching method described here versus 100% Australian Shares. (See the footnotes for assumptions made.)
5% has been used for the Cash interest rate and 5% has been used for the Share Dividends.
The Shares_Cash line (dark Blue) is the result of investing $10,000 on 1st July 2000 and then switching between 100% cash and 100% shares using the switching method described here. As you can see the switch method manages to catch most of the significant share rises while avoiding the severe falls. The straight lines are when the switching method was in 100% cash earning 5% a year. You can also see there are long periods of time when it is just not worth the risk to be in Shares. The Yellow line at the bottom is high when the switching method is in 100% shares. Note: the assumption of 5% cash interest rate is not valid currently, but AustralianSuper Property as a 'cash' alternative has returned 5% or more in the last few years so this chart is still indicative.
To use this method I need to be able to regularly change where my super was invested, shares, cash etc. Many funds only allow changes to be made a few times a year. This is not often enough to allow the transfer of the super out of shares when the share market starts going down and transfer it back to shares when the market starts going up.
I found that AustralianSuper, an industry super fund, (www.australiansuper.com) allowed me to change the allocation of my super on a weekly basis without penalty.
Email me if you find other suitable funds that provide a similar service. Make sure you check the current terms and conditions before making your choice of fund.
www.hostplus.com.au, an industry super fund, say they allow weekly changes free of charge.
www.intrustsuper.com.au , “Intrust Super, a 100% Industry Super fund, also allow their members to switch investments weekly and at no extra charge to the member."
www.agest.com.au “We do not currently limit the number of investment switches you can make, nor do we charge a fee for making an investment switch. However, we do reserve the right to change these arrangements in the future. We will give you at least 30 days’ notice if this is to occur.”
I transferred all my super from my previous fund to AustralianSuper.
I need access to a computer with an internet connection to perform the checks described below and to advise AustralianSuper of my switch request. I have a computer and the internet at home, but could just as easily use the internet facilities at the local library or internet café.
This step is now much simpler using the program I have provided. I now just run the program each weekend and follow the result.
If I was doing the method by hand then, each weekend, I spend a few minutes performing the checks described below and then, if necessary, use the AustralianSuper web site to request a switch. AustralianSuper then actions the switch Wednesday the following week.
If I am currently 100% in Cash, I am asking myself “Is the share market going up? Should I switch to Shares and did the moving averages work last time?”. If I am currently 100% in Shares, I am asking myself “Is the share market going down? Should I switch to Cash?”.
To answer the questions I use two Simple Moving Averages (SMA) indicators on the Australian All Ordinaries (au:xao), so first I will describe how I plot those indicators using BigCharts. (www.bigcharts.com). For more information on Simple Moving Averages search on the internet
The third part to the switching method is to determine when it does not work. When the share market is going sideways, as it been for most of 2010, SMA indicators like the ones used here don't work well. So the third condition to switching into 100% shares is “Would the last switch have been profitable”. In other words if the SMA11 above SMA33 and SMA33 above SMA99 was successful in making a profit last time, then use them again. If the last switch would not have made at least the 'cash' rate (5%) then don't use the moving averages to switch to shares this time, wait for a successful switch before starting to use them again.
I decide if the last switch was or would have been more profitable than 'cash' by noting the closing All Ords index on the Monday after Friday when the moving averages said to switch to Shares and then subtracting this from the Monday close after the Friday when the moving averages say to switch out of Shares. If the result is positive, ie the share market when up from the entry to exit Monday AND if the gain is more then 5% pa, then I say that switch was profitable and I can use the moving averages to next time to switch my money into Shares for real.
The chart below shows what happens if you don't
follow this rule.
This chart covers the first few years of the chart at the top of this page, but switching into Shares every time the moving averages crossed over, regardless of whether the last switch was profitable.
As the above graph shows, there are definite periods when simple moving averages do not work. If the simple moving averages did not work last time they are not likely to work this time. This third part of the switching method avoids most of those periods were using SMA does not work. The switching method I use here is to not switch to shares unless the last switch, based on the SMAs, would have been profitable.
So now that I have shown the two sets of SMA indicators I use, here are the rules I apply to tell me when to switch from Cash to Shares and back again. I perform the following checks each weekend using the SMA values for previous Friday.
As soon as the Friday's SMA(11) line
equals or falls below the SMA(33) line
if the Friday's SMA(33) line equals or falls below the SMA(99) line.
If I have any doubt about whether or not the line is on or below the other one, I assume the worst and switch to the safety of Cash.
Here I am more cautious because having my super is shares is much more risky then getting 5%+ in Cash. Before I will switch my super back to 100% Shares, All Three (3) the following conditions need to be met.
the Friday's SMA(11) has to be above the SMA(33) line, indicating a short term rising market
the Friday's SMA(33) has to be above the SMA(99) line, indicating the market is going up in the longer term
AND the last switch based on these conditions 1 and 2 must have been more profitable then 'cash'. (Based on the All Ordinaries closing prices on the Monday following the switch decisions and a 5% cash rate)
Again, if I have any doubt about whether or not one of the above conditions has been met, then I assume the worst and leave all my super in the safety of Cash for another week.
If the last switch to Shares was not profitable then I stay in Cash and just note the closing index value on the next Monday and wait for next switch out signal. Again I note the closing index value on the following Monday and then see if the final index value was higher then the entry one. If the final index is higher then the entry index value by more than 5%pa then I mark that switch as a success and condition 3) is satisfied for the next time conditions 1 and 2 tell me to switch to Shares. If, on the other hand, the final index value was lower than 5%pa, then I mark that switch as a failure and mark condition 3) as not being met for the next time conditions 1 and 2 tell me to switch to Shares.
See here for Detailed Examples of how I apply my Switching Method. I use the ProtectYourSuper2_1_12.jar program to download the share data and apply these three rules.
I have found that by selecting an appropriate super fund and using the simple rules described above, based a chart of All Ordinaries index available on the internet, that I am able to avoid heavy losses in my super over the last few years while still making gains now that the share market is recovering. I sometimes lose money switching into Shares and out again, but I catch the major rises in the market while avoiding the major falls.
Spending a few minutes once a week applying this method, lets me sleep peacefully every night when the share market goes in to a substantial decline because this method has has told me to put all my super into Cash and using this method also removes the worry about when I should put my super back into Shares as the market recovers.
The AustralianSuper performance was calculated for the daily differences available from their website. The All Ordinaries Share data was sourced from Yahoo 7 Finance The data was processed by Java programs written by me and OpenOffice V3.2.1 was used to plot the results.
Assumptions used to produce the chart since July 2000
The Cash return was fixed at 5% per annum and dividends of 5% per annum were applied quarterly for Shares for back testing to year 2000
The profit or loss was applied each time a switch was made.
A switch lodged on the weekend was executed at the closing all ordinaries index on the following Monday.
No superannuation fund fees were deducted
The superannuation Share Fund tracks the All Ordinaries Index.
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