If you’re wondering what to do with your super and investments in the current financial market, you’re not alone. Stockmarkets in Australia have been bouncing up and down as debt fears in the US and Europe fuel global speculation, and investors and fund managers worldwide have been riding a rollercoaster of uncertainty.
It’s that last word that makes this whole situation so difficult, and if like many Australians your super is heading towards maturity or you’re concerned about the future health of your savings, it’s not what you want to hear.
Unfortunately, there are no easy answers for those trying to protect their hard-earned investments. However, there are some general principles you can apply in the current economic climate to help manage your financial situation sensibly. In any case, it’s important to seek independent financial advice from someone you trust before committing to any financial decisions, especially given the state of market volatility.
Understanding Australia’s position
We operate in a global financial climate. What happens in the US and Europe will have an influence on Australia and its most important trade partner, China. The good news is that Australia is in a good economic position in the event of sustained global uncertainty, which should give investors and superannuation holders some confidence in the face of recent turmoil. It does not mean that our economy is immune to trouble or that investors won’t face trouble, but the data does show room for positivity.
Consider that in simple terms a lot of the concern in global financial markets is centred on government debt. The US’s recent near-miss default was highly publicised while the Eurozone continues to grapple with its own sovereign debt woes, including in countries like Greece and Portugal. Even Europe’s larger economies like Italy, Spain and France have not escaped recent market turmoil . In comparison, Australia has relatively low government debt.
Australia also has the benefit of its resource-rich mining sector, and banks that are continuing to post record profits. On Wednesday the CBA posted a net profit of $6.84 billion (at least it looks like they are cutting rates this time). In contrast, the US economy has been slower to recover than expected and the recent Standard and Poor’s downgrading has also wreaked havoc on markets. In Europe, debt problems are tied to a complex web of systematic and social issues, which have even caused rioting in Greece.
What you can do
Personal factors such as your age and appetite for risk cannot be overstressed, which is why individualised advice is important. However, in general, as super matures and you get ready to start using your savings, people often look to safer investments like cash and bonds. If the market is giving you the jitters, this can also provide peace of mind.
Tip: don’t just rely on the name your super fund gives an investment profile, check out the actual investment structure. Some funds may call a profile “safe” but still invest heavily in shares.
For those with a longer outlook, a balanced and diverse portfolio has historically been the best way to protect against volatility but still take advantage of future growth. Not including the recent downturn in the last few weeks, data from Super Ratings (PDF) shows that in the three years since the GFC, balanced funds have recovered earlier losses and were set to begin making solid returns. While recent drops will likely see many people’s super dip back into the red, when viewed over a longer period of several years the median losses for balanced funds should be relatively low.
Tip: Selling shares and getting out of investor markets can protect you from further damage, but it also crystallises any loss (think: the horse has already bolted). You must keep your investment timeframe in mind when making a financial decision.
Another way to help provide for your future is to boost your super contributions. The government allows you to salary sacrifice to a super account, which may result in tax benefits and possibly co-contribution benefits. Making sure you combine your super into the one account will save on fees, and make your investment easier to manage. If you’re not comfortable investing in super, you may simply choose to put money in a high interest savings account or other investment vehicle and seek to make a return in that way.
How do you feel about the current global economic environment, and have you thought about your investments and superannuation?
Plenty of people got involved with their thoughts about the Census. Most people were happy to share their data, and there was at least one reformed Jedi.
James said, “What a great country we live in, that the Government spends money to ask for our collective opinions! I think it's very important. I once made a joke on it, putting my religion as Jedi, but I realise now being a little more mature, how important it is. Census is no joke! :)
Adriana said, “Big Brother knows everything about us anyway....We may possibly get the infrastructure, the better roads, and the bus services we desperately need in some parts of Sydney...One can only hope...”
Judy O'Neill said, “I don't mind answering most of the Q's but, I resent giving my full name and date of birth. It should be anonymous with a general age bracket. This would be sufficient for their needs.”