# Putting money into the market for retirement?



## stargazer (22 January 2008)

Hi all

Question I have been thinking about.  Imagine that 10 years ago you were coming into retirement.  You put you money into shares and keep buying along the way manged funds direct etc.

Where would you find yourself NOW today.

How can one plan for retirement income by way of the sharemarket when financial disasters can happen in the space of a week.

cheers
SG


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## treefrog (22 January 2008)

*Re: How can you put money into the sharemarket for retirement*



stargazer said:


> Hi all
> 
> Question i have been thinking about.  Imagine that 10 years ago you were coming into retirement.  You put you money into shares and keep buying along the way manged funds direct etc.
> 
> ...




you can get 3% from a bank with no risk to your money
debentures 9% with considerable risk
sharemarket - major ups and downs

more potential return = more risk


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## Judd (22 January 2008)

stargazer, that is exactly why the government's of both persuasions transferred risk from itself to the individual.  They knew that to have a national retirement scheme would put the expectation of a guaranteed income onto the government.  As far as Treasury and Finance were concerned that had to be avoided at all costs.

However, to their credit the Hawke/Keating Government and the Unions saw the need for some compulsory savings for retirement (it did not take a genius with multiple PhD's in Economics and Pure Mathematics to see the demographic wave of baby boomers and the effect it would have).  Hence the 9%.  Trouble is it really should have been 15% and over a long period of time - and I am talking 40 years or so - returns should average out such market shocks as we are currently experiencing to provide a reasonable private income in retirement.

Unfortunately, the 9% has not been in place for that period of time nor are people prepared to be patient for 40 years nor do people entering the workforce even consider retirement.  Way to many chicks and/or blokes around on which to spend the money.


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## Real1ty (22 January 2008)

stargazer said:


> Hi all
> 
> Question I have been thinking about.  Imagine that 10 years ago you were coming into retirement.  You put you money into shares and keep buying along the way manged funds direct etc.
> 
> ...




Financial disasters don't happen in the space of a week and the warning signs are usually there long before the event.


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## glenn_r (22 January 2008)

stargazer said:


> Hi all
> 
> Question I have been thinking about.  Imagine that 10 years ago you were coming into retirement.  You put you money into shares and keep buying along the way manged funds direct etc.
> 
> ...




10 Years ago the XJO was around 2800 at todays close it's 5186, add in dividends and your retirement income still looks good to me.


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## TheRage (22 January 2008)

stargazer said:


> Hi all
> 
> Question I have been thinking about.  Imagine that 10 years ago you were coming into retirement.  You put you money into shares and keep buying along the way manged funds direct etc.
> 
> ...




If you were nearing retirement and thinking of drawing a income you would have an allocation within your investment (Super/ Pension) to cash. If you had 1 million in super and you wanted to draw 50K per year to start with you would allocate $100K to cash and let the remaining $900K in whichever investment you were comfortable with to go up and down. After 2 years you can top up the cash account when appropriate. 

To be honest, Not having a personal dig at you stargazer, but I am about fed up with all the financial disaster talk going on at the moment. Anyone would think the end is nigh. If most of the people on this site spent 1/10000 of their time and money on getting professional advice instead of the amount of time they spend speculating, doomsaying, ramping etc they would not be looking at pulling thier pants down right now and kissing their proverbial goodbye. Again Stargazer not a dig at you personally but I don't think I have read post today that wasn't going to end with someone topping themselves from financial ruin.


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## Timmy (22 January 2008)

stargazer said:


> Imagine that 10 years ago you were coming into retirement.  You put you money into shares and keep buying along the way manged funds direct etc.
> 
> Where would you find yourself NOW today.
> 
> ...




Not sure I understand your question, and elaborating on what glenn_r has posted

January 1998 All Ords was at approx. 2600.  Today its around 5200.
That doesn't take into account dividends, imputation credits and so on.
So thats a doubling in 10 years - hardly stellar but not bad if you are a passive buy and hold type invested in shares/funds that pretty much track the whole market?

January 1998 All Ords Accumulation Index was at approx 11,200.  Yesterday close around 35,500.
This index assumes dividends reinvested.  Up by a factor of 3 - again not stellar but not bad?

TheRage brings up some fair points too.  Markets are volatile at times,

One of the things that I don't get is when someone puts money into the market they are putting money into a business.  How many have owned businesses?  Ever tried to sell one that wasn't doing well?  Can be very difficult.

OK - so put your money into a business in the form of a share.  If that business doesn't do well ever tried to sell it?  It is as easy as hitting a bid...If there are no bids then you haven't done your homework regarding liquidity.  There are HUGE advantages of buying businesses that are publicly quoted - not the least of which is a quick exit if you want out - take advantage of this.


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## bvbfan (23 January 2008)

Judd said:


> However, to their credit the Hawke/Keating Government and the Unions saw the need for some compulsory savings for retirement (it did not take a genius with multiple PhD's in Economics and Pure Mathematics to see the demographic wave of baby boomers and the effect it would have).  Hence the 9%.  Trouble is it really should have been 15% and over a long period of time - and I am talking 40 years or so - returns should average out such market shocks as we are currently experiencing to provide a reasonable private income in retirement.
> 
> Unfortunately, the 9% has not been in place for that period of time nor are people prepared to be patient for 40 years nor do people entering the workforce even consider retirement.  Way to many chicks and/or blokes around on which to spend the money.




The ALP had in legislation to take that to 12% then 15% and guess what happened in 1996?
The so called smart economic managers decided to scrap it


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## stargazer (24 January 2008)

Hi all

Thanks for your replies.   I didn't think i was coming across negative just asking a question.

Perhaps i didn't ask it correctly but i am still not clear where one would put there money.

For example if you buy a group of stock and rely on dividends, the dividends are not guaranteed and they can change so its no stable income.

As per the present we can have severe corrections for whatever reasons.

So for the average super for a worker being probably around $100,000 getting 5% isnt going to get that person an income of substance.

This is why i think mums and dads are taking more risks in an area which is not as easy as what it is made out to be.  The super is just not enough and the sharemarket is marketed to give substantial returns.

People getting into the senior years don't really want to be watching the markets and have heart failures when these things happen.
How many times do you read or hear retirees losing everything going into returns which are inflated because there retirement supers are not large so they more vulnerable.  Then they are called greedy investors.

Years ago the pension took care of it all.  Now it is all changed as we know.


So now you work for 40-50 yrs
only just got 9% going into super the last 15 or so years

People are taking unnecessary risks because they have been told they will not have enough in retirement.


Cheers
SG


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## stink (24 January 2008)

If you are managing your trades whether they are long term or short, a stop would be hit yeah, or am i missing something?


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## numbercruncher (24 January 2008)

Ive got a ton of empathy for those that last year took advantage of Costellos "Once in a lifetime" opportunity to drop a mil into super, many borrowing the money using their home as security


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## julius (24 January 2008)

Over the last 50 years the US market has returned ~12% p.a ; the point is prices are volatile, while value is not.

Quality companies with strong & enduring economics will continue to return profits on equity investment - historically the fundamental growth of these entities has been somewhere around this 12% mark, which suggests the most simple and effective method is to look for ideal entries and hold for the long term.


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## Birdster (24 January 2008)

Whats your empathy for on the million dollar super booster Numbercruncher? Is/ was there a bad side to it all?


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## TheRage (24 January 2008)

numbercruncher said:


> Ive got a ton of empathy for those that last year took advantage of Costellos "Once in a lifetime" opportunity to drop a mil into super, many borrowing the money using their home as security



I don't agree with your sentiment. Why does everyone bash Super so much on this site. I don't beleive that too many people actually understand the greater mechanics of what Superannuaiton is. I think for the most part people on ASF refer to Super as what most people know it as, which is an Industry Fund which is a Unitised Investment where the Super Balance is affected by buy in and sell price according to the fund style chosen. I have nothing against Industry funds and think most ASF members will actually be hard up beating the Long term return of an average Industry balanced super fund which is about 10%. 

Superannuation can be a whole lot more than the simplified view above. Aside from Self managed Super funds there are Platform options like wraps which allow the investor individual choice of the underlying investments and these funds are not unitised but Director managed. For instance you have a Super balance of $200,000 which you decide you want to buy 10 Australian fully franked shares which pay dividends and imputation back into the cash account at which point you buy more. Or alternatively you could stick all of you money in cash if that tickled your fancy. How is this different to holding the money in a bank account? I will tell you the difference Super over 60 is tax free on withdrawals but still taxed at 15% on earnings. If you convert to a Pension (Keeping exact same underlying investments) but the *name has changed nothing else* then once over 60 not only are withdrawals tax free but so too are income drawings and any earnings made by the fund are also tax free. Lets say you decide to cash out your super and you have a 1 million balance and proceed to put it into bank. The interest earned lets say 70000 (7%) is now taxed at marginal rate which would be around 16,000 tax. Who is better off here?? Borrowing to put into Super can be a dangerous strategy but if the underlying investment is solid how is this different to borrowing on margin. There is no difference. A superannuation balance that has fallen is only detrimental if you need the money immediately. Keeping money in cash within Super gets around this problem. By the way just for the record Mr and Mrs bloggs who put 1 million in super each last year who in 3 years time decide to start drawing income by way of a pension becasue they turn 60, whose balance if held in cash for the 3 years will be 7% over the 3 years will save a lot of tax. 2 million earning 7% in bank account $140,000 income (tax = 30-40K). If held in super/Pension tax = $0. For the record those who did not take advantage of the 1million rule would be hard pressed getting the money into such a tax effective environment in such a small space of time. Also it is worth noting that Superannuation in general is taxed at 15% on earnings (15% on employer contributions but 0% on personal after tax contributions) and Capital gains work out around 10% within the fund. I can't see how anyone can beat these rates for a way of growing their investment.


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## numbercruncher (24 January 2008)

Hi, I'm saying I feel sorry for people who borrowed a Mil for super and have been smoked by the market correction, maybe I shouldn't have empathy for people, greedy become the needy yeah? Everytime I mention on this site that I feel sorry for someone peeps jump on me, thats ok, Ill change my thinking, I hope all you budding retirees go bankrupt, not really, thats not in my nature.

I have recently set up a SMSF and see it as the greatest wealth creation tool in which to set up both myself and offspring, love it, even though I cant access it for 30 years 

Happy Investing all


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## TheRage (24 January 2008)

numbercruncher said:


> Hi, I'm saying I feel sorry for people who borrowed a Mil for super and have been smoked by the market correction, maybe I shouldn't have empathy for people, greedy become the needy yeah? Everytime I mention on this site that I feel sorry for someone peeps jump on me, thats ok, Ill change my thinking, I hope all you budding retirees go bankrupt, not really, thats not in my nature.
> 
> I have recently set up a SMSF and see it as the greatest wealth creation tool in which to set up both myself and offspring, love it, even though I cant access it for 30 years
> 
> Happy Investing all




I agree with your comment about the greedy become the needy.

But in general Superannuation is a fabulous investment. 

By the way I am not a budding retiree. I am 25 years away from retirement. My defence on Superannuation does not come from a personal point of view but an educated one.


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## numbercruncher (24 January 2008)

My punt is to take advantage of the generous super rules now, as I think going forward the Gov may not be able to afford to keep them as generous as they are now, over the next two decades as our workforce shrinks and retiree base rises im thinking the Government might struggle with the books and lower income tax revenues.


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## refined silver (24 January 2008)

TheRage said:


> but I am about fed up with all the financial disaster talk going on at the moment. Anyone would think the end is nigh.




You obviously need to read something more balanced like Mogambo Guru -"We're all freaking doomed". A very funny guy. 

http://www.dailyreckoning.com/Writers/MogamboGuru.html


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## nizar (24 January 2008)

stargazer said:


> Hi all
> 
> Question I have been thinking about.  Imagine that 10 years ago you were coming into retirement.  You put you money into shares and keep buying along the way manged funds direct etc.
> 
> ...




For those that have been putting money into the markets for 10 years -- this week would be nothing. They still would have multiplied their initial investment many times over.


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## numbercruncher (24 January 2008)

nizar said:


> For those that have been putting money into the markets for 10 years -- this week would be nothing. They still would have multiplied their initial investment many times over.





I think that comment should be regarded as a little flippent, contributions are spread over a decade not put in at the beginning and Inflation does damage as well.





Doesnt look like nothing to me  what if more is to come ?


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## Nyden (25 January 2008)

numbercruncher said:


> I think that comment should be regarded as a little flippent, contributions are spread over a decade not put in at the beginning and Inflation does damage as well.
> 
> View attachment 17244
> 
> ...




Yes, to say it's nothing is a little silly. We've erased a years worth in gains over a few weeks...


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## drmpf (17 September 2009)

*Protecting Your Super*

I have posted an article at www dot forward dot com dot au /superannuation/protectingyoursuper.html (sorry cannnot post links on first post) that describes how I took backcontrol of my super, avoided losses and made more money. I use this simple method to protect my superannuation against drops in the share market. All I needed to do was to select an appropriate super fund and to have access the internet once a week, from the local library for example. I did not need to start my own super fund. 

I have been using the method since July 2007.

Back testing to July 2000 shows this method has the desirable features of sustained grow in a variety of market conditions while avoiding deep losses when the share market falls.


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## gooner (17 September 2009)

My plan when I retire is to keep most of my money in equities but generally have enough in cash for 3 years living expenses. If market looks toppy, pull some more out, if market looks too sold down, delay taking cash out. If I retire at 55 (9 years away - scary........), my life expectancy is probably around 25 years, possibly more given I don't smoke, possibly less given I like my Coopers Original Pale Ale and red wine too much. That is a long time to be wholly in cash and have it ravaged by inflation.

Hopefully, also leaves more money for me to give to the kids. If Kincella is right about prices doubling every 10 years, they will need it.


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## drmpf (19 September 2009)

*Re: Protecting Your Super*



drmpf said:


> I have posted an article at www . forward . com . au /superannuation/protectingyoursuper.html (sorry cannnot post links on first post) ...




The method I use depends on being able to switch any week.  So far Australian Super is the only super fund I know of that allow this.  Does anyone know of any others?


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