So I'm gonna share some tips to consider when thinking about changing your
investment options. Now first question. If there's a lot of volatility in the share
market should I change my super investment option to conservative?
It's tempting isn't it? To get out of the market during volatile times but should
you? Let me put it another way. Would you sell your house during a property market
slush. I'm guessing only if you really had to. And the same should apply when it
comes to changing your super investment option. Now, interestingly when it comes
to super often the best course of action is no action. Let me explain. In a falling
market if you move your money say from a balance investment option into a
conservative option you crystallize your losses. And in turn if you don't get your
timing right you could miss out on the rebound when you do finally switch back.
Time in the market rather than timing the market is probably your best tip
right now. And if you're looking for some cold hard numbers to give you some
reassurance then consider this from industry super Australia. At the last
major market decline during the global financial crisis retirement savers who
move their money from an average balance Industry fund into cash would have
missed out on investment returns of $4,000 after three months,
$13,800 after a year
$34,800 after five years and massive $46,000 after seven years. History does
show that members who stay invested in growth assets and stick to a long term
plan can end up better off than those who keep swapping and changing their
investment options. Yes, the share market has seen some significant falls in 2020
due to the economic impact of the coronavirus. Which of course does have a
knock-off effect on super funds. But you've got to remember this that losses
in your super funds are somewhat cushioned than those losses in the share
market. That's because super funds do diversify risk by investing in a number
of asset classes. A typical balance fund for
example would have just over half your money in equities and the remainder in
infrastructure, fixed interest and property. It's also worth noting some
simple facts here. The first fact is that super is a long term savings vehicle and
performance needs to be considered over the long term. The second fact is that
individuals who change their investment option choice to a more conservative
investment option after equity prices have fallen normally do worse in the
long term as they may not be in a position to benefit from recovery in share
prices. However if you're still keen to switch know that your fund may charge a small
amount a buy/sell spread that reflects the transaction costs and limits may
apply on the number of times you can switch between asset classes. And it's
really important here that you do get some expert advice before you make any
impulsive moves. Next question. I've noticed my super
balance has gone down considerably. When can I expect my balance to be back to
normal? Well I'd love to be able to predict the
future and in fact it is nobody can. And particularly during unprecedented times
such as the coronavirus pandemic. Let's take a look at the market shakeout that
came out with the global financial crisis or GFC as you may know it. It saw
values toppled by 50 percent between October 2007 and February 2009 that's
the share market values drop by 50%. Now despite the scale of the falls the
market recovered within four years by July 2013. Super funds recovered even
sooner. Analysis by Industry Super Australia showed that a median balance
Industry Fund will say $100,000 in September 2007 that's just before the
GFC struck would have dropped to $78,563 by February 2009.
That's a top-to-bottom fall of more than 20%. It's not a great result but a far
lower fall in the overall share market. In terms of recovery Industry Super
Australia found that same balanced superfund would have returned
to its October 2007 balance by March 2012 three years after the markets began
to wobble and just two years after the market hit its low point. The key
takeaway is that because super is spread across a variety of assets it's less
likely to experience the full brunt of stock market falls. The diversified asset
base also means funds could bounce back sooner potentially recovering their
value ahead of global share markets. Always important to keep a look at your
super statements to make sure you know it's happening with your super fund.
Here's to staying calm and seeking expert advice before you make any super
moves.
you