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Q&A: How are current world events impacting my super?

Uncertainty around Coronavirus and its impact on the global economy has spooked financial markets. Nobody knows the overall impact at this stage, so how should we react?

Lifestyle conducted a Webinar on Friday March 26, to answer our client’s questions and concerns around current market volatility and the impact this is having on superannuation balances.

We have answered the most common questions asked during the Webinar below. If you need help, we are always here to support you.

1. Does my superfund change the asset allocation as an individual approach’s retirement, or do we have to ask for the change?

If you have made a choice how your super is invested, your investment will remain unchanged. Any change will need to be instructed by you.

If you have not made an active investment choice within your superannuation fund, you will be invested in your funds default investment option. This option is different for all super funds. Some will have a static asset allocation throughout the life of the investment, some will have a Lifestage/Lifecycle approach which will invest you more aggressively when young and slowly reduce the risk of your investment as you near retirement. You should speak to your superfund or Lifestyle if we are your adviser to discuss how your super is invested.

2. If you have cash in term accounts is it worth considering a move into shares now, or best to wait until we get some stability?

Every client at Lifestyle is different and has different needs and outcomes they wish to achieve. Our Webinar content is general information only, therefore if you wish to seek personal advice we are happy to help you implement strategies to assist you in reaching your future financial goals. Please contact your adviser, or Lifestyle on 1300 349 188 for assistance.

3. What is to say history will repeat itself, as we have not experienced this type of economic health phenomenon in the past.

This is a good point. Current volatility is unique to the virus and the cascade effect is flowing into global markets. This volatility is likely to continue from what we can see in the short to medium term as the extent of the virus on global trade is not yet known.

During the presentation Gareth highlighted historical market shocks ie: Black Monday 1987, September 2011 and the GFC of 2008. The graph discussed by Gareth showed how dramatic downturns (at the time) have recovered and are now not as dramatic as they seemed at the time. The takeaway here is it’s important to regularly assess your financial position and superannuation, to ensure that your goals and the length of time you have to achieve them reflect how you are invested.

The less you know about how your money is invested, the greater impact significant events may have on your superannuation balance and you emotionally. If you understand how your superannuation is invested, the chances of you making irrational investment decisions at the wrong time is reduced.

4. My super is invested in a high growth fund, the last time I checked it had lost a quarter of its balance. My first instinct was to switch but I then thought to myself that it was probably too late, and I would be unlikely to claw back the loss in a more defensive balance.

A high growth investment fund is predominately growth assets (shares and property) and generally has less than 10%defensive assets (cash and bonds). In well performing markets such as 2019, you will experience above average returns.

Growth assets provide capital growth over the long term, defensive assets such as cash and bonds provide little growth as they are income producing. A market downturn will be cushioned by cash and bonds as they provide downside protection, however these assets will reduce long term returns. If you were to switch to a more defensive portfolio now, you will crystallise the losses you have incurred, and it may take longer for you to recover your losses when the market rebounds, your future expected returns may also be lower as your growth is reduced by an increase in defensive investments.

5. What is a geared fund and how do I know if I am in one?

If you are invested in a geared fund, it would usually have ‘geared’ or ‘accelerated’ in the name of the investment. You would be there by choice, not by default.

Geared share funds are managed funds that have internal gearing (borrowings). These funds can significantly outperform during well performing markets and have the opposite effect during a downturn.

With any downturn it’s important to remember that you still hold and are purchasing (with super contributions) fundamentally sound investments at a cheaper price, therefore accumulating more investments with each purchase or contribution, which will see you have a sharper recovery when markets normalise. Again, we stress that your investments should reflect your goals, geared investments generally are better suited to those with a longer time frame to invest as they are extremely volatile.

6. Should I be making changes to my investments in the current environment?

How you are invested today, should reflect the length of time you have to invest before needing your money. If you require money in the short term you should cater for this using defensive investments, so you are not selling down growth investments at the wrong time.

A person with 20 years until retirement should invest differently to someone that is 5 years from retirement. Growth investments are suited to longer investment timeframes, and defensive investments are suited to shorter investment timeframes.

Volatility has less impact over the long term and more impact over the short term, meaning aggressive investments for shorter investment timeframes can be riskier during a downturn. A common mistake that has been made by investors pre GFC and COVID-19, is the year prior to these market events were years of above average growth and market returns, which can lead investors to take on more risk in the hope markets keep going up.

Know when you need your money and invest accordingly.

Watch the full webinar recording below:

How Lifestyle can help you during this period of uncertainty

  • Lifestyle are here to assist you during the hours of 8:30am – 5:30pm on 1300 349 188.
  • Webinars to keep you up to date with markets and government announcements.
  • Access to our Advisers should you need personal financial advice.

The information on this page contains general advice. It does not take account of your objectives, financial situation or needs. Before acting on any information on this Q & A factsheet you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. You should consider talking to a financial adviser and read the relevant Product Disclosure Statement (PDS) before making a financial decision. This page has been prepared by Lifestyle Financial Services Pty Ltd (ABN 85 065 161 391), a Corporate Authorised Representative of Fortnum Private Wealth Ltd (ABN 54 139 889 535), AFSL 357 306. Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Lifestyle Financial Services, Fortnum Private Wealth, its related entities, agents and employees for any loss arising from reliance on this page.