Structuring your super to weather financial storms

Published on: October 11th, 2023

In 2008, the Global Financial Crisis (GFC) had a significant impact on retirement savings across the globe, and many thought it was a once-in-a-generation event. But as we saw with COVID-19, financial downturns are a reality, and will likely happen multiple times during your lifetime.

In today’s climate, as we weather higher global inflation and interest rates and rising geopolitical tensions, it’s critical to ensure you structure your super to navigate uncertainty and ensure events like these don’t define your future.

Avoid panic decisions

During COVID-19, superannuation funds reported a surge in non-advised clients moving their superannuation to cash in a bid to stem the impact of the financial downturn. While having a cash component to your super should be a part of your strategy, making a move at the height of a downturn simply locks in any losses.

It’s important to remember that your superannuation is a long-term investment, and even if you are nearing retirement, you can still make up losses as markets recover. Selling your shares at the bottom of the market is rarely, if ever, a good idea.

Understand your asset mix

Most Australians have their shares in a “balanced” fund, but many don’t know what that actually means.  A balanced fund often has at least 25% of the fund in both Australian and international shares, which means the typical balanced fund dropped by 12.5% during the COVID-19 pandemic, a significant loss, but not an unrecoverable one.

The asset mix that is right for you is dependent on your age and your goals, but there are many options out there, and you should be exploring the right one for you.

Know where your money is invested

Many Australians take a set-and-forget mentality to their super, but just like any other investment, it’s crucial that you know exactly where it is invested – not just the asset mix, but the actual companies.

This knowledge can help you understand the full picture, make rational decisions, and avoid panicking. You don’t need to be a financial expert, but this is your money, so you should know where it is held.

Consider a cash component (but don’t move into cash at the bottom of the market)

At Apt, we advise our clients to maintain a cash component to their super, with the percentage really depending on their situation and retirement goals. Many people don’t consider a cash component because it doesn’t present as much in the way of short-term growth, but what it does do, is give you the opportunity to make moves at the right time.

For example, many Apt clients chose to move part of their cash component into shares during the GFC, buying some at 50% lower than their previous share price. These clients typically made significant gains when the market recovered from that event.

For those who are nearing or already retired, your cash component can continue to grow as you divert your dividends and can create an income stream for you while the rest of your super remains invested in growth assets.

When share markets do fall, having a cash component will mean you can continue taking your regular income payments without having to sell any shares at the bottom of the market. This gives you an opportunity to sit tight and wait for things to recover.

Don’t go it alone

Seeking expert advice is recommended before making any financial move – but even more so when it’s related to your superannuation, as the stakes can be high. You don’t need to be an expert, but it’s a good idea to have one in your corner.

No matter the economic climate, a good adviser can help you with making the right moves at the right time to ensure your super works for you. This advice is important for everyone, but it’s critical for those nearing or already in retirement. An adviser can help you with a managed process to reduce any impact and get your retirement back on track.

The important thing to remember is to avoid making panicked, short-term decisions without the required knowledge or expert advice to guide you through the storm.

If you are worried about your superannuation or want to make sure you remain on track with your goals, we encourage you to contact us to see how our calm, rigorous, and proven approach can see you living for today while planning for tomorrow.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.