"Should my financial adviser have been cashing out shares in my super portfolio this year, prior to the current crash? Allowing a buy back in now at a lower price? I am retired and honestly shocked no trading has occurred on my account. It seems a lost opportunity."
-Question from Lisa in South Australia
Top answer provided by:
Lucky Manna
Hi Lisa,
I completely understand your concern about recent market movements. Let’s examine what happened with Australian shares between 1st April and 22nd April 2025 and why your adviser’s disciplined approach protects your long-term retirement goals.
The Reality of Short-Term Market Volatility
Here is an example of how the ASX 200 (What is ASX 200 – This includes 200 largest companies listed on the ASX, based on how much their shares are worth, this tracks the combined movement of these 200 companies, giving a broad indication of how major part of the Australian stock market is performing)
Example: S&P/ASX 200 Index Performance (Last Three Weeks)
The above shows ASX 200 on 31st of March to 7th April the share prices were declining and by 22nd of April they were almost back to the same levels as on 31st of March
Source- Google Finance
Why Trying to "Buy Low" is Problematic
1. The Bottom is Only Obvious in Hindsight
The ASX 200's early April performance highlighted the significant challenge of predicting market movements.
The market experienced three separate declines:
- On April 4th ASX fell by -2%
- On April 7th a further fall by - 4%
- On April 9th a -2% fall resulting in a consolidated drop of -8%.
- Following these declines, the market saw a sharp rebound with a 5% increase on April 10th.
S&P/ASX 200
Source: Google Finance
This rapid turnaround emphasises that identifying the exact bottom of a market dip in real-time is virtually impossible. By the time it becomes apparent a "bottom" has occurred, a significant portion of the potential gains from buying low may have already been missed.
2. Transaction Costs Can Eat Away at Returns: Every time you buy or sell shares, there are costs involved.
- Brokerage fees: Each trade incurs brokerage fees (typically $15-$30 per trade).
- Tax implications: Selling could trigger capital gains or loss tax obligations this erode overall returns.
- Bid/Ask Spreads: Even the small difference between the buying and selling price (the bid/ask spread) can subtly erode your returns with frequent trading.
3. Falling into Behavioural Traps: Trying to time the market often leads to emotional decision-making.
- Buying Back Too Late: As seen in our ASX example, if you had sold out after the initial drops, you might have waited too long to buy back in, potentially missing a large part of the subsequent recovery.
- Developing a "Chaser" Mentality: Constantly trying to react to market swings can turn you into a chaser of short-term gains rather than a disciplined long-term investor.
What An Adviser Actually Provides
Instead of attempting the near-impossible task of perfect market timing, adviser focuses on strategies that are proven to build wealth and protect your retirement over the long term:
Understanding Your Comfort Zone:
One of the fundamental steps your adviser would have taken is to understand your individual risk tolerance. This isn't just about your age or a numerical score; it's about how you genuinely feel when the market experiences both positive and negative movements.
Strategic Asset Allocation and Quality Investments
To illustrate this, let's look at some of the biggest companies listed on the ASX.
Even among established companies like BHP, which saw its share price decrease by around 20% over the past year, there's another important factor to consider: dividends. BHP currently offers a dividend yield of around 5% per year. For a retiree seeking income to fund their lifestyle, these regular dividend payments can be significant, even if the share price has experienced a temporary downturn.
Similarly, NAB has seen its share price increase slightly over the past year and offers a dividend yield of around 5%
Source- Google Finance: This is an approximate figure based on the share price movements over the last year as 22 April 2025. Please note that the exact return and dividend yield can vary slightly depending on the specific start and end dates.
An adviser's role is to ensure your super portfolio is invested in a diversified mix of these types of quality shares or share index and other asset classes. This diversification helps to cushion the impact of individual company or market downturns.
Time Horizon: For someone aged 65 with a life expectancy of around 85, your investment timeframe is still potentially very long – 20 years or more.
Why is this important?
- Australian Life Expectancy: Males have an average life expectancy of over 81 years (a potential 16+ year retirement), and females over 85 years (a potential 20+ year retirement).
- Shares are generally considered a long-term investment strategy, typically for periods of 8 years or more. Considering years in retirement one can say you have a long timeframe, and the potential to ride out short-term market volatility and benefit from the long-term growth potential of shares.
Why This Consistent Approach Matters for Your Retirement:
-The Power of Compounding: Over the long term, the returns on your investments can generate further returns, and this compounding effect is a powerful driver of wealth creation. Frequent trading can disrupt this process.
- Practical Implications: Trying to "wait out" volatility often means missing the subsequent rebounds, as knowing precisely when to reinvest is incredibly challenging, even for professionals. The strongest market recovery days often occur when things still feel most uncertain.
- Your adviser's disciplined approach helps to:
* Prevent emotional exits: Advisers act as a steady hand during market turbulence, preventing you from making rash decisions based on fear.
* Ensure dividend reinvestment: If your strategy includes it, dividends are automatically reinvested, allowing you to buy more shares (potentially at lower prices during downturns) without you having to actively trade.
* Achieving the "Sleep Test": Ultimately, your adviser aims to build a portfolio that allows you to sleep well at night, confident that your long-term financial goals are being protected, even during short-term market fluctuations.
While it’s understandable to feel like a trading opportunity was missed, your adviser’s focus on a well-diversified portfolio of quality assets, aligned with your risk tolerance and long-term timeframe, is the most robust strategy for achieving your retirement goals. Market timing is often a tempting but ultimately unreliable pursuit.
If recent movements have left you with questions or concerns, the best thing you can do is talk to your adviser.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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