It’s no secret that investment markets are being punished at the moment and we’re all seeing the balance of our super funds dropping. Not a nice feeling? Welcome to the world of investor psychology.
Investor behaviour is for the most part counter intuitive, when markets are up we’re all happy and many of us want to invest more. When markets are down, it’s doom and gloom and some even sell out. But if you think about it, that doesn’t really make sense. In reality, the risk of markets falling is greater when they’re at their highs and the likelihood of them going up is greater when they’re at their lows.
For most of our super funds, the longer the market stays down the better. Most of us can’t access our super for a very long time so a depressed market is actually good. There should be regular contributions going in to your super fund from your employer and at the moment these contributions are buying into very cheap assets.
BHP, the world’s largest mining company, has a share price currently sitting below $15. It’s been close to $50 in the past. Many other companies are in the same boat. In addition to your employer contributions, your super fund is regularly buying more assets probably without you even realizing it through dividend reinvestment.
If you have a share based asset mix in your super fund, your fund receives income in the form of a dividend. This is basically a share in the profits of the underlying companies your super has invested in. And as a bonus, many of these dividends carry tax credits (imputation credits) which can be utilised by your fund. The trick of course is to make sure your super is invested in a quality fund that holds quality assets.
So while everyone is in a panic about the state of the market, just remember, your super fund is actually increasing its asset base as it purchases assets at very low prices. You’re getting more bang for your buck. Sure, the current value of your fund is down but as markets recover, you’ll have all those assets you’ve bought at cheap prices working for you and going up with the rest of the market.