Stock punting is either a game for mugs or savants: it appears there is no in-between. There are your seasoned investors who balance, gain footholds, cut losses, and create a varied portfolio that will rise with the market (generating wealth for themselves and their clients along the way), and then there are those that chuck a couple of grand at Tesla via their Robinhood account because ‘Dave Portnoy did it.’
Why, then, you’d want to pull your money out of your super fund, which is already being managed by professionals, to invest it yourself, unless you were Warren Buffet (in which case you’re rich enough not to bother in the first place), is bizarre to say the least.
A graphic recently posted to Twitter in response to a post by Motley Fool Chief Investment Officer Scott Phillips, sums up the absurdity of this situation perfectly – taking out your super to re-invest it yourself is a bit like playing roulette.
Maybe just the super you pulled from professional investors to have a punt. pic.twitter.com/5AsSfqBIb2
— unusually average (@confused_sage) July 22, 2020
Earlier this year, DMARGE spoke to Fernando Prieto, CA at Solid Partners Accountants & Advisors, to understand the true implication of withdrawing $10,000 – or in some cases $20,000 – of your super early (something many Australians got the option to do over June and July, providing they met the eligibility requirements).
“If you’re going to take out money, the superfund has to sell some asset to fund you redeeming part of your superannuation balance,” Fernando told us. “As the share market has tanked [as it had at the time], if you do this you’re sort of crystallising your losses and… you could find yourself in a situation where that $10,000 would have recovered and compounded and been hundreds of thousands of dollars by the time you retired [but instead it doesn’t, as you pulled it out early].”
“I wouldn’t be taking it out unless you really have to.”
In terms of specific numbers, for individuals, Fernando breaks it down like this:
“If we assume an individual had 30 years left before they retired, and if we also assume their superannuation grew at an average rate of 8% per annum, then $10,000 compounded for 30 years would be worth $100,626.56 in 30 years time.”
“If another individual only had 1 year left to retire then that $10,000 would only have grown to $10,800 if it also grew at the same rate of 8%.”
“The impact is greater the number of years left to retirement and the higher the average rate of return over that same period.”