The recent market downturn has sent superannuation balances tumbling, with the share market dropping more than 4% in a single day and losses totalling 10% so far this year. For many Australians, watching their retirement savings shrink can trigger anxiety and the urge to take immediate action. But is that the right move?
Understanding Market Cycles
Financial planner Paul Fowler offers a valuable perspective: “Moments like these happen. It’s just a different reason. It’s happened in the past, it’ll happen again.”
This historical context is crucial. Over the past 120-130 years, stock markets have experienced numerous downturns and crashes. The consistent pattern? They’ve always recovered, though the timing remains unpredictable.
The challenge for investors isn’t predicting the next market move—it’s managing their emotional response to volatility. As Fowler notes, “The hardest thing to do in times like these is actually sit on your hands and do nothing.”
Strategies for Those Approaching Retirement
If you’re nearing retirement, this market volatility likely feels particularly threatening. However, making hasty decisions could do more harm than good.
“The worst thing you can do is essentially take money out of your investments that have exposure to the share markets and put them into cash. Because essentially what you’re doing is crystallising losses that are very hard to get back,” Fowler explains.
For those who planned to retire imminently, consider these alternatives:
- Delay accessing your superannuation if possible
- Use existing cash savings first to give your investments time to recover
- If you must draw from your super, take from the defensive portion of your portfolio (cash and fixed interest) rather than selling equities at reduced values
Most Australian superannuation portfolios typically have about 50-60% in equities or property, with 40-50% in cash and fixed interest. This diversification provides options during market downturns.
Fowler elaborates on this point: “For those people in retirement, it’s probably wise if you need money to try and take it out of the cash and fixed interest sort of your portfolios as opposed to the shares and just let them float along over the period of time till markets recover because they will.” This strategy allows retirees to meet their immediate income needs without locking in losses on their growth assets.
For those on the cusp of retirement, Fowler suggests a flexible approach: “If you’re considering [retiring] over the next week or two weeks, I’d probably try and hold off or utilise money that you have in savings first in the bank before you start transitioning to buy yourself some time.” This pause can be crucial, allowing your portfolio a chance to recover before you begin drawing down on it for retirement income.
Opportunities for Wealth Accumulators
For those still building their retirement savings, the perspective shifts dramatically. “For people that are accumulating wealth, it’s sale time,” Fowler points out. “You’re buying the same shares for a cheaper price today than what they were four days ago.”
If you’re in this category, consider:
- Maintaining or even increasing your regular contributions
- Viewing market downturns as buying opportunities
- Focusing on your long-term investment horizon rather than short-term fluctuations
Practical Advice for All Investors
Regardless of your life stage, certain principles apply universally during market volatility:
- Manage your information intake: Constant news about market drops can increase anxiety. “My advice to a lot of people there is turn the news off,” suggests Fowler (though he makes an exception for useful conversations like financial education).
- Avoid emotion-based decisions: “Try not to make investment decisions based on the emotion that’s flying around at the moment,” Fowler advises. This simple but powerful approach can prevent costly mistakes.
- Maintain perspective: Remember that paper losses only become real when you sell. Market recoveries have historically rewarded patient investors.
Staying the Course
Market volatility is an inevitable part of investing. While it’s uncomfortable to watch your superannuation balance decrease, making hasty decisions based on short-term market movements often leads to poorer outcomes.
The most successful approach for most investors remains remarkably simple: keep calm and carry on. As challenging as it may be to do nothing when markets are turbulent, sometimes the best action is precisely that—patience.
What strategies are you using to navigate the current market volatility? Have you found certain approaches particularly helpful for maintaining perspective during downturns?
Listen in to Paul’s Chat with Charlie on the ABC Far North Queensland Breakfast Show:
