Most Australians are invested in the sharemarket as part of their superannuation savings. The average super investment will comprise a mix of shares, government and corporate bonds, cash, and some ‘alternative’ asset classes such as property and commodities. This means any volatility in the sharemarkets will be felt to some degree in superannuation.
While it is only natural to be concerned about volatility in the markets, it is important to remember that losses on paper are not real losses until they are crystallised. That is, your super generally has a chance to recover from short-term volatility. However, if you take action and crystallise those losses by switching your investments to cash, this loss will be essentially locked in. So, trying to resist the urge to act impulsively is very important.
Super is a long-term investment and fluctuations are part of the market cycle. History shows that investors who stick to a long-term asset allocation strategy have come out ahead.
If you are just starting out or are in the middle of your working life, you have a long time to keep investing money for your future and are well-placed to take market ups and downs in your stride. In fact, sharemarket drops may present great buying opportunities.
If you are closer to retirement and plan to access your super in the next few years, there is no need to be alarmed. You still need to rely on your retirement savings for up to 30 or 40 years from when you stop working. So it’s likely you’ll need to keep your super invested for many years to come, giving you time for markets to recover. Keep in mind that you also continue to benefit from concessional tax treatment in the super environment and once you turn 60, any money you take out of your super is tax free.
Similarly, if you are transitioning to retirement or are in retirement, there are still many years ahead for your savings to remain invested. In addition, recent Government rules mean you can keep your savings in the super system indefinitely so you don’t need to make a hasty decision. Speak with your financial planner about your best approach to retirement.
Source: Russell Investments, September 2011
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