You asked what the Wall Street wipe-out meant for you — we answered

You asked what the Wall Street wipe-out meant for you — we answered

You asked what the Wall Street wipe-out meant for you — we answered

Updated 8 February 2018, 1:10 AEDT

After a volatile few days in global stock markets that saw $5.1 trillion wiped off the value of shares, ABC business reporter Stephen Letts answers your questions about what this means for Australia.

After a volatile few days in global stock markets that saw $5.1 trillion wiped off the value of shares, I answer your questions about what this means for Australia.

Many ABC readers wanted to know what it meant for an average Aussie's retirement plan.

Others were keen to know where the money went, and who gets it.

And — do stock markets secretly love volatility?

I'm 21 — what does that mean for my eventual retirement and avocado toast? (India R)

"Not a lot. Super is an investment over the long term. What is important is your fund keeps growing your assets over your working life, and let the genius of compounding returns work their magic.

"Corrections like this are generally a small step back on the long march forward. Negative annual returns are pretty rare and you have to go back to the global financial crisis (GFC) to see super going backwards.

"Australian equities deliver a yield through dividends of about 4.5 per cent. If the market goes up 4 per cent over the year (ASX is up 20 per cent over five years — nothing spectacular there), you've got 8.5 per cent a year.

"Compound that each year and total return looks much better. As well, your super fund — assuming you don't run you own Self-Managed Super Fund which is pretty Australian share-centric — will not place all its bets on Australian shares, which it must be said have been a bit of a laggard.

"They will diversify into global equities, bonds, infrastructure, property — all sorts of things to hopefully boost your returns.

"The avo should stay smashed long term, even if the market is smashed short term."

What does this upset on Wall Street mean for the average Aussie? (Jordan F)

"Financially, if you're not a punter on the stock market, not a lot. It will be a blip in long-term super.

"It may weigh down on consumer sentiment a bit and make life even tougher for retailers, but that may be it. If it sets in and the correction becomes a major and ongoing GFC-style capitulation, that might be different.

"Even then, Australia got through the GFC relatively unscathed. Not sure how we would get out of it the next time though.

"Interest rates are already at historic lows and there is not much room to cut them more."

What effect might this have on real estate values? (Mary F)

"Once again, probably not a lot of impact. House prices are levelling off, or even cooling, as in Sydney — shout-out to Hobart where they are still going up, but a long way behind Sydney.

"At the margin, it may accelerate the cooling, if only because this sort of thing also cools consumer sentiment.

"People feel more anxious about their future and financial wellbeing, and are perhaps less likely to splash out on a really big commitment like buying a home.

"But overall, Australian housing is marching to an entirely different beat to global shares.

"The only other comment is, if this correction becomes larger and longer running, interest rates (at least the official rates from the RBA) won't be going up. That may keep repayments down, but demand and prices up.

"I think the key issue for housing is unemployment. If that gets off the leash, red-hot house prices will come down."

As a 20-something, how will this affect me in the long term? (Claire B)

"A bit like the first answer but it is worth noting that in the 25 years, since the Superannuation Guarantee was introduced by the Keating government, the average "balanced" super fund has returned 7.4 per cent.

"That is 7.4 per cent through a few economic cycles, including the big bust of the GFC — the after-effects of which are still quite a handbrake on things today.

"2008 delivered -6.4 per cent, 2009 was down by almost 13 per cent. 2012 there was virtually no growth at all.

"Nonetheless, over the 25 years the 7.4-per-cent compound growth has delivered a return of 190 per cent.

"So, no need to break out the worry beads just yet."

Will the stock market recover the losses in a short or long period of time and, if so, will we be likely to see more value-shedding like this in the short term? (Naish J)

"Who knows? Certainly not a humble ABC hack. The answer is — quite probably. The markets, particularly the US, soared way ahead of fundamentals.

"In other words, the prices being paid didn't justify current earnings and were a bet on longer-term earning growth.

"The Volatility Index is telling us, in the short term at least, that amorphous body known as the market is somewhere between worried and scared, and is looking for a less risky place to park its squillions.

"That is not exactly a recipe for short-term gains. At the same time, the solid rebound shows there is still an appetite for risk, as big money moved in to pick up what are perceived as bargains.

"Perhaps one thing the market has going for it is a synchronised global economic upswing.

"It is worth remembering that this collapse was sparked by wages going up in the US, leading to worries inflation was taking off and interest rates would go up. Worse things have happened."

So, where did it go? Where was it lost? From one rich bugger to another rich bugger? (Jason A)

"Fair question, Jason. Basically, you only lost or gained money if you actually participated in the sell-off and as they say, crystallised your losses or gains.

"For most of the big funds it's a question of taking some profit off the table. Shares had raced up and were looking over-priced, so why not?

"There didn't seem to be a lot of distressed selling and margin calls going on. Someone bought those shares, and on an ultra-short term basis appear to be 1 to 2 per cent ahead. Do that every day and you're laughing. Investment bubbles are all about the timing.

"As big US fund manager (and a bit of bear) John Hussman famously said, 'The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak'.

"While traders and brokers look anxious at these moments (maybe because they've just told their clients about a sure thing the week before), it is worth noting they collect a commission on the sale, regardless of whether the client made of lost money. So, brokers made a bit.

"Stock exchanges, like the ASX, too may look at such events with a furrowed brow, but they really love volatility. They make a living on turnover. They make a motza on panicky turnover."

Who gets the money? (Steve C)

"It's a bit like pass the parcel of shares, except no-one get a big present at the end.

"Generally, in rising markets you just the clip the ticket as the shares pass through your hands. In falling markets, it is a bit more like pass the scalding hot rock.

"You lose a bit of skin on it as it goes through hands, unless you're betting on a falling market. 'Shorting' shares is a totally different level of weird where you make money of things falling apart."

Is cryptocurrency more secure? (Simon M)

"No. It's down 60 per cent since its peak a few weeks ago.

"If equities pulled that sort of stunt, we'd be off to the bomb shelters living off stockpiled canned food and contemplating the end of civilisation."