Is the super early release scheme a solution or the start of a bigger problem?
To say that 2020 has been a big year so far for everyone would be an understatement, given that many of us have had to contend with fires, floods and, of course, the COVID-19 pandemic. If we combine this with the current uncertainty around the economy, it's no wonder many Australians are feeling stressed and uneasy about their future.
In order to relieve some of the financial stress, our government launched the early release of superannuation, allowing individuals to take up to $10,000 of their superannuation prior to June 30 and another $10,000 after June 30.
According to APRA, 2.5 million people applied to take advantage of this before the end of the financial year, totalling approximately $19 billion, most of which has been paid out. Now that we have started the new financial year, these same people have the option to access the second tranche.
So, has this scheme achieved what it set out to do or is it creating a bigger problem for individuals in the future?
I ask this question because several people I have spoken to who accessed the money did not need it, but wanted it simply because they do not like superannuation. While others have used the money to pay bills or reduce debt to give themselves some breathing space during the lockdown, you have to ask is this robbing Peter to pay Paul?
If you take $10,000 out of superannuation, then according to ASIC's compound interest calculator, your superannuation would be worse off by around $27,000, assuming a compounded growth rate of 5% over 20 years.
If you take the full $20,000, then you will be over $54,000 worse off in 20 years based on the same compounded growth rate. So, did the scheme do what it was supposed to do? We don't really know the impact of that just yet, but what we know is that those who took the money will be worse off in retirement, which is not good.
Best and worst performing sectors this week
As the All Ordinaries Index was down slightly this week, most of the sectors are down, although there are some positives with Information Technology currently up more than 2%, while Communication Services and Material are up more than 1.5%. The worst performing sectors include Healthcare down more than 4%, Industrials down more than 2.5% and Consumer Discretionary, which is down nearly 3% so far this week
Looking at the ASX top 100 stocks, the best performers are all resource companies with Northern Star Resources up more than 7%, Fortescue Metals up more than 6% and Evolution Mining up more than 5% so far this week. The worst performers include property companies with Vicinity Centres and Lend Lease, both down more than 8%, followed by Crown Resorts down more than 7% and Mirvac, down almost 7% for the week.
What's next for the Australian share market?
Last week the market moved up solidly, indicating it would rise further. But this week the All Ordinaries Index has shown weakness, once again, as it is trading down slightly. Since June 1, the Australian stock market has risen 3.45% with continued signs of indecision between the bulls and bears with no side showing any dominance.
As I mentioned last week, to prove that the market is bullish we need to see it trade above the high of 6314 points set on June 9. While I still believe the market will rise up over the next few weeks to trade around 6600 points, if the bears take hold of the market and push it down to close below 6000 points today, we may need to reassess this target as further falls are likely.
Until there is more certainty about the direction of the market, I recommend investors remain patient, as there is still a probability the market could turn to fall away and test the March lows.
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