Superannuation is no gamble – and there is no place for crypto
You can't put your superannuation on the roulette wheel – and nor should you invest it in crypto. Photo: Getty
So would you like to gamble with your superannuation savings? Go down to the casino and put it all on red?
It is a few percentage points short of 50/50 that you’d double your money on a single spin of the roulette wheel, a few percentage points more than 50/50 that you’d lose it.
Of course, you’d be a mug to do it and, without going into chapter and verse of the Australia Tax Office’s “sole purpose test” and other rules – the investment must be for the sole purpose of providing benefits to members when they retire – it would be illegal to try it with your super fund.
But people with SMSFs (self-managed super funds) have been and are able to gamble with their super on far worse odds than the roulette wheel.
For example: crypto.
As the bubble has burst, stories are inevitably emerging of punters who have done their dough on the latest craze, as punters do with every bubble.
The ABC ran a story this week about a couple who have $50,000 in limbo – about a quarter of their SMSF – thanks to “investing” with a Brisbane cryptocurrency broker.
(I write “investing” in quotation marks as I have never regarded crypto as an investment – it has always been nothing but a gamble. The various “coins” and tokens have no intrinsic value or stability; they rose in price only because they were rising in price as more mugs piled on the bubble – a mania.
If I was a betting man, I’d wager the couple’s former cash is unlikely to remain in limbo. It’s more likely to be going to hell.
There are plenty of outfits that made money out of encouraging and facilitating people to gamble their super on crypto. Such outfits made money. The punters lose.
Oh yes, the few who bought Bitcoin early are still ahead – but even poker machines pay an occasional jackpot to keep the mugs coming.
The Australian Securities and Investments Commissioned warned back in January that SMSF trustees were being targeted to “invest” (that word again) in crypto, that superannuation was an attractive target for scammers and that “crypto-assets” were a high risk and speculative “investment” – but reportedly $1.4 billion of SMSF savings has been plonked on crypto red.
A tweet by Scott Phillips, Australian chief investment officer for The Motley Fool investment advice company, prompted me to rhetorically ask: “Wanna buy shares in a race horse through your SMSF?”. I meant punting on crypto would be about as wise as thinking buying shares in a hayburner would be an “investment”.
As a minimum, an investment in super should not be odds-on to lose. The vast majority of gee-gees lose money. Again, the roulette wheel offers better odds.
But having replied to Scott, I thought I had better check about racehorses and SMSFs. Turns out that it would not be impossible to buy shares in a nag through super, but the ATO makes it tricky and it would be very hard to find a reputable financial adviser who wouldn’t warn you off it.
Yet it is possible to legally replicate the loser’s odds of racehorse ownership for a SMSF at the riskier end of the stock market. There is no shortage of precarious companies for those who like to gamble.
Which brings me to the harsh lesson people are learning yet again: Something as important as superannuation retirement savings are for investing in known risks at low odds, not speculative gambles at precariously high odds.
Somewhat perversely, time and again not trying to beat the market actually beats the market.
There’s no better example of that than the success of Vanguard, the world’s second-biggest fund manager with nearly $12 trillion under management. (Yes, that’s trillion, with a “T”.)
Vanguard is best known for its low-cost index funds – funds that replicate the market at low cost instead of trying to beat it at higher cost. It works.
What is less commonly known outside investment circles is that Vanguard is a mutual – it is owned by the people who use it to invest.
The company has rewarded its owners by consistently lowering costs, pushing down its fees, giving them an advantage over fund managers that charge big fees to try to outperform and generally fail to do so over time.
It is a great example of the mutual structure – profits for members – shaping a market. In plain English, to borrow from Don Chipp, keeping the bastards honest, forcing down other funds managers’ fees.
At the Business Council of Co-operatives and Mutuals conference last month, I had the pleasure of interviewing Eric Balchunas, the author of The Bogle Effect, a book on Vanguard’s founder, Jack Bogle. It explains how the combination of the mutual structure and index funds was a match made in investment heaven, saving investors well over a trillion dollars and counting.
Last month Vanguard took a direct step into the Australian superannuation market. Its index funds are already widely used here, but now it is offering its own Vanguard Super product.
There are pluses and minuses about Vanguard Super. Using the example of a 0.58 per cent annual fee for a $50,000 default fund for members aged under 47, it is cheaper than many managers but not necessarily the cheapest.
Unlike its US stock market investment revolution, this time Vanguard is competing against other low-cost mutuals – the industry super funds.
Sydney Morning Herald economics writer Jessica Irvine this week provided a case study of checking her own super fees and found three industry fund options that were a fraction of what she has been paying and considerably less than Vanguard Super.
Jessica’s is not a typical super fund, but the example holds.
And as well as very, very low fees, there is no hint of crypto, racehorses, or even roulette wheels.
It’s investment, not gambling.
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