The Laptop Investor

It’s late at night and I feel compelled to write this article due to the day I’ve had. Throughout the day I’ve had half a dozen people call me with concerns about their Super (retirement fund) and the appropriate action they should take.

To start with I am not a financial advisor so none of this constitutes as advice however is my opinion only.

So I’ve got friends and acquaintances panicking for a number of reasons. This Covid 19 (Corona Virus) has caused such wide spread panic that I’ve not seen before. Even the Global Financial Crisis didn’t cause this much panic.

The concerns I’ve fielded today are that Super Funds have been decimated and in some cases their funds are down 6 figures. I can see that this is really disconcerting for anyone to have to stomach. I’m in the same situation so can sympathise. In all cases these people have over 10 years before they can even access their retirement fund.

I became extremely concerned however at the response and action already taken. So three of the people two days earlier switched their funds to cash. One is concerned what to do and wants to switch to cash whereas the other two this week are going to switch to cash.

Lets break this down and think logically for a moment. As I write this article, both the US market (S&P500) and the Australian market (ASX300) are down well over 30% from their peak. To me that is quite a significant move and yes the market could keep going down.

From a contrarian investor point of view however there is a lot of blood on the streets. When neighbours are talking about it, when people I’ve not heard from for months call me to ask for advice, and when TV shows that have nothing to do with finance talk about it, to me it tells me everyone is on to this. So my question is, if everyone is pessimistic and selling their positions, who else is left to sell? Time will tell. I don’t believe we are at the point of maximum pessimism but don’t think we can be far off.

To me this is akin to the situation I was faced with when Bitcoin was all the rage. From the exact opposite standpoint, for example greed rather than this fear. I had lots and lots of people ask me whether to get into Bitcoin. My response was a resounding Noooooooo. As it turned out the Bitcoin bubble eventually burst and I was glad to have saved some people heartache and cash.

I don’t mean to trivialise the current state of affairs as clearly this pandemic is global and today the Australian government announced strict measures to ensure social distancing, for example pubs, gyms, casinos, cinemas etc to be shut down. This is unprecedented and will place intense pressure on the market and economy. I’m already aware of a number of people close to me who have lost their jobs.

So as to the question with what to do with the Super Fund and with the markets having sunk this far already, to me it seems the horse has already bolted. The risk now in switching to cash is any losses will now be realised losses and yes once the panic from the markets has gone the fund can be switched back to its growth path however no one can reliably pick a market top or bottom. To wait for the panic to subside and calm to follow suit will surely be the start of the markets bull run. So the real risk is can the Super Fund be switched back to its usual growth allocation at the same point or lower where you switched to cash. To me this is a significant risk that needs to be considered. So in my humble opinion the response should be keep calm and carry on.