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