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Protecting Your Superannuation
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by Matthew Ford 18th
Jan 2021 (first posted 17st
September 2009)
© Forward Computing and
Control Pty. Ltd. NSW Australia
All rights reserved.
The
previous version of the software is
ProtectYourSuper2_2_1.jar
and
pdf
documentation.
RiskYourSuper is the method I am now using. Although it has more risk, it is more suited than ProtectYourSuper to the current low interest rate environment. I control the level of risk I am comfortable with by a) investing in a Balanced Fund instead of a pure Shares Fund and b) only investing part of my super (currently 100%) and leaving the rest in the Cash Fund. What is a 'comfortable' level of risk is a very personal decision based on such things as how long until you need to access your superannuation and how comfortable you are to switch to cash after the share market has fallen by 10% or more.
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.
Rule
1 – Invest in a Super Fund with exposure to Shares and stay in
that fund until the share market drops by 10% from the last high.
Rule 2 – In not in 'shares' then, stay in 'cash' until the
99 day moving averages starts to turn up (on a weekly basis).
Rule
3 – Adjust the % of the superannuation balance invested in
shares to a 'comfort' level of risk.
E.G
invest only a proportion of your super and/or invest in a Balanced
Fund instead of a pure share fund.
RiskYourSuper has superseded ProtectYourSuper as the method I am using for my superannuation in a low interest rate environment. As the name suggests the RiskYourSuper approach has more risk.
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.
RiskYourSuper
V1.1 now uses the share data manually downloaded from
au.investing.com. As the name suggests the RiskYourSuper approach has
more risk.
No change in the last 3 months. RiskYourSuper stays in
'shares' until they drop by more than 10% which has not happened. I
am currently using HostPlus Balanced as my 'share' alternative and
currently my super is split 100% Balanced and 0% Cash.
Introduction
Download
the Free Software (runs on Windows, Mac, Linux, Solaris)
Results
for AustralianSuper funds since 1st
July 2008
Summary
of Results
Conclusion
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 doing this method since 2010 using a variety of method, the latest being this one. For a discussing of the background to RiskYourSuper see this page.
Here is a comparison of RiskYourSuper/ProtectYourSuper versus AustralianSuper Balanced and AustralianSuper Australian Shares funds. The returns for all three, over the last 11 years, has averaged between 6.9% to 8.3% 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 RiskYourSuper/ProtectYourSuper performance
switching method described switching between 100% 'shares' and 100%
'Cash' alternative.
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). From 11th February 2020 the switches are between Hostplus Australian Shares and Hostplus Property Fund, except that the latest switch on 29th February 2020 was to 100% pure Cash Fund (Hostplus Cash Fund) as a safety precaution. From 30th June 2020 I switched to using RiskYourSuper V1.0.0
RiskYourSuper currently switches between Hostplus Balanced Shares and Hostplus Cash. RiskYourSuper stays in Balanced until the share market drops by more than 10% from its last peak. Then RiskYourSuper switches to Cash until the 99 day SMA line turns up (on a weekly basis)
This summary is mainly ProtectYourSuper which I was using for the last 10years. The RiskYourSuper results take over from 30th June 2020.
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. On 7th April 2020 I revised Rule 3 to ignore the last switch's profit/loss if the market had fallen by >10% which showed ~10% improvement on back testing since 2008.
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. From 11th February 2020 the switches
are between Hostplus Australian Shares and Hostplus Property Fund,
except that the latest switch on 29th
February 2020 was to 100% pure Cash Fund (Hostplus Cash Fund) as a
safety precaution.
From 30th June 2020 I switched to
RiskYourSuper. Currently RiskYourSuper switches between Hostplus
Australian Balanced and Hostplus Cash
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 prompted my move to RiskYourSuper. RiskYourSuper current switches between HostPlus Balanced and HostPlus Cash Funds.
Having used ProtectYourSuper for the last 10 years, I now find it is not effective when the interest rates are almost zero. There Is No Alternative (TINA) to shares for earning a return on your money in this economic environment. So I have replaced ProtectYourSuper with RiskYourSuper, which spends most of its time in shares and only switches to cash when the share market falls by more then 10%. 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.
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