Global banking turmoil and your super

It all started a couple of weeks ago with the collapse of mid-tier US institution Silicon Valley Bank.  Soon another mid-tier bank in the US, Signature Bank, collapsed.

If you have been brave enough to look at your super balance in the past few days you will know that the share market has since fallen more than 5% and is now trading at four months lows. In that two weeks markets have fallen because the recent turmoil in banking has spooked investors who remember the pain of the Global Financial Crisis 13 years ago.

Things got a whole lot spookier last weekend when top tier global banking institution Credit Suisse was bailed out by the Swiss government in a deal that prioritised shareholders over bond holders and was then folded into arch-rival UBS.

So, are we right to be spooked? Are we about to experience a second Global Financial Crisis? In the words of Yogi Berra, “Is this déjà vu all over again?”

Not according to the people in the know.

US banking system sound and resilient

In his press conference when increasing interest rates for the ninth time, the chairman of the Federal Reserve, Jerome Powell moved to reassure markets by describing the banking collapses as “isolated incidents” and the banking system as “sound and resilient”.

Australian banks are unquestionably strong

Here in Australia, the assistant governor described Australian banks as “unquestionably strong”, with the banks’ capital and the liquidity positions being well above the regulator’s required levels.

Still, the banking turmoil is far from good news for the global economy which is already at risk of recession. We expect to see credit in the banking system tighten as institutions become more conservative, which will in turn reduce business and consumer spending, further hindering global economic growth.

Investment outcomes are more important than super fund returns

As independent financial planners who specialise in retirement, we know that while volatility is a normal part of investing, it is the enemy of the retirement portfolio.  Most retirees are both short and long-term investors and are required to sell assets to fund living expenses from time to time.

Retirees should avoid selling quality assets at depressed prices at all costs.

At Daniel Crump Financial Planning, we employ a framework that compartmentalises your money into buckets that are invested according to their purpose. This bucketing approach, when supported by a continuous planning cycle, involves judicious rebalancing, where we seek to take profits while avoiding crystallising losses.  In this way, your investment outcomes disconnect from the ups and downs of your super fund’s returns during turbulent times.

So, you can have confidence to spend today knowing that you’re still being responsible for the future. 

Daniel Crump is the founder of Daniel Crump Financial Planning.  This article is general and does not consider your personal circumstances.  If you would like independent advice specific to you, give us a call on 0418 148 622.