Ask An Adviser - Should I Leave My Super In Indexed Balanced Full Stop, Or Switch Between Cash When The Market Looks Dicey? (3)

Top answer provided by:

Mark Candy

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Thanks for the question John.

It is very easy when markets are volatile to think that I should move to a safer asset class like cash, but making such a change without thinking through the likely impacts of such a decision, can have significant consequences for your future retirement savings.

As we well know, financial markets move around a lot, and during times like these, we see quite a lot of movement. Let us not forget that a little over 10 years ago, the world went through the global financial crisis (GFC) and that in a relatively short period of time financial markets did recover. As a consequence of that recovery, people’s superannuation savings were eventually restored.

Whilst COVID-19 is different from the GFC, one thing that history has taught us is that markets do bounce back. It is important to remember that superannuation is a long-term investment and that it is structured to carry people’s savings through the invariable peaks and troughs of market shocks, like what we are seeing now.

Typically speaking, a balanced fund usually targets between a 40% - 50% allocation to defensive styled assets (cash and fixed interest) and between a 50% - 60% allocation to growth styled assets (equities, listed property), the benefit being that your portfolio should be well-diversified across the various asset classes. Having a cash buffer in times of market uncertainty makes good sense and let us not forget that you will have an allocation to this asset, as part of your overall balanced indexed portfolio anyway.

In my view, a market downturn is not really the right time to sell out of your superannuation portfolio and switch to cash. By selling down when the market is low, you will effectively crystallise any losses that your fund has experienced and you may miss out on any investment market recovery, thus having an exponentially negative impact on your superannuation balance over the following decades.

Superannuation, in a nutshell, is there to provide a retirement income when you need it when you are older and no longer working. Therefore, this time should really be used to sit tight, ride out this period of uncertainty if you can, and wait for the markets to recover. Remember, superannuation is a long-term investment and over time it will recover from the ups and downs in investment markets.

I would be suggesting during this time of uncertainty, to consider your long-term goals and to make sure that any decisions that you may end up making are well-informed.

Some tips for consideration:

1. Avoid overfocusing on market volatility/negativity. When markets are volatile, it can be worthwhile reviewing your investment strategy, but do not make any knee jerk reactions based on recent gains or falls. Remember that diversification across a broad range of asset classes is the best form of defence to ride out the ups and downs in the markets, at any point in time.
2. Superannuation is a long-term investment. If you are close to retirement, say 5 years or less, then understand what your retirement income options may be and take your time with them and avoid any hasty decisions. Consider getting financial information or guidance from a licensed financial adviser or your superannuation fund.
3. Do not try and time the market. It is not a good idea to sell investments or shares based on the daily headlines. Trying to predict the best time to buy and sell is just too difficult to achieve as you may end up selling your investments and moving to cash, only for the markets to recover soon after. Holding onto your investments and sticking to your plan is an effective strategy if your financial goals and situation has not changed.
4. Review your financial goals. Unexpected events can have an impact on your financial goals. Consider what your long-term goals are and only make well-informed decisions about these. Talk it over with your partner or family, as this can often provide some additional perspective for you.

Finally, if you are using or thinking about using a financial adviser, now may be a good time to do so, as they can assist you with reviewing your financial goals and strategies and potentially assist with refining these for you, should this be required.

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.

Article by:

Mark Candy

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