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Retail Super Funds use "mark to market" pricing which means assets are revalued (usually daily) and investors can immediately see the increase or decline in their Super Fund. However many Industry Super Funds use "mark to book" pricing. I have included an excerpt below of the recent Alan Kohler (respected Australian finance journalist and commentator) article about this issue:
So far super funds have been a refuge from the horrors of the sharemarket for which politicians can take credit, but that will change in 2009 because their diversification into unlisted assets over the past decade will start to work against them.
It's simply because investments in direct property, direct infrastructure, hedge funds and private equity are valued only periodically, often just once a year. What's more, market valuations are not used, but rather discounted cash flows and net present value of income flows using capitalisation rates.
The future cash and income flows are little more than a guess these days and capitalisation rates are moving sharply against the funds.... The risk of staying in a superannuation default fund is now incredibly high.
The listed versions of the funds' unlisted assets have all collapsed in value, but in many cases the unlisted valuations reflected in the value of the core fund have not moved or even in some cases gone up. This is about to catch up with the funds in a big way.
Listed property trusts have fallen at least 50 per cent. In many cases listed infrastructure funds have dropped by much more than 50 per cent. So are the listed funds undervalued or are the unlisted funds overvalued? And then there are the hedge funds and private equity funds, as well as the super funds' own direct property and infrastructure...
In many cases, geared hedge and private equity funds are now worthless because underlying asset values have fallen 50 per cent behind a 60 per cent gearing ratio. Many of these will only hit the super funds' core fund valuations on June 30 this year, when the unlisted portfolios are valued and audited.
Source: Alan Kohler, OPNews
If you are in an Industry Super Fund (i.e. SunSuper, QSuper, REST etc), it would be prudent to come in and have a review with us. At the very least you should contact your Super Fund and ask about how they value the Property and Alternative Asset classes of the Fund.
The Australian Sharemarket rallied off its lows in March, registering its first positive monthly return since August 2008 and its strongest monthly gain since April 1995. The All Ordinaries index rose 7.1% but is still down 34.7% over the past 12 months.
Markets could experience another short term downturn, but I am confident that asset values will increase in the future and I have learnt from my years in this industry not to try and time the market.
Many of you have heard stories about the benefits of dollar cost averaging and compound interest. That is, building wealth for the long-term by investing small amounts on a regular basis. Of course, it was Albert Einstein who is attributed with having said "the most powerful force in the universe is compound interest".
The clients who have had the best returns within our practice over the last 10 years are generally those that have established a regular investment plan and stuck to it in both good and bad share market conditions. You can establish a regular investment plan with as little as $25 per week (two pizzas, garlic bread and a bottle of soft drink). You can increase your monthly commitment at any time, or could reduce it if circumstances changed. You are not locked into a contractual arrangement.
Over time, many of our clients have participated in this program with quite a number increasing their regular savings commitment when they received a salary rise or a tax cut. The regular savings were channelled into well managed diversified investments that gave exposure to a range of asset classes including cash, fixed interest securities, property and shares.
This simple strategy gives clients access to two of the great investment principles, dollar cost averaging and compound interest.
One of the advantages of a regular investment program is that once we set up an automatic facility to divert a regular amount from your bank account or salary, you adjust our spending habits accordingly and after a couple of weeks, you don't miss the amount being saved.
The benefit of a regular investment program is that you don't need to have a large amount of money to start. A number of fund managers have plans available that can be commenced with as little as $1,000 and regular contributions of $100 per month.
Speak to us today about starting a regular investment plan. With markets being in a depressed state, the opportunity to get in "on the ground floor" has never been better.
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