Money
Protect your super: 5 proven investment strategies for wild markets
Yes, the market’s in a spin, but these 5 expert strategies can help you stay steady, protect your nest egg and even find some smart opportunities.
By Nicole Pedersen-McKinnon
Has the wild sharemarket rollercoaster been making you feel queasy? That's the word Donald Trump himself used…
Rarely have we seen such wild ups and downs and unfortunately your super is along for the volatile ride.
And the other almost certainty now is that interest rates are going to go down farther and faster than previously forecast.
Here’s your 5, 4, 3, 2,1 countdown on how expert investors play such wild markets, for safety and even gains.
5. Hold on (even if it’s a white-knuckle ride)
Rarely have events in America so affected us sitting here in Australia – well, leaving aside the global financial crisis in 2008…. but I’ll come back to that.
Since the moment Trump came to power, however, it seems we’ve been dealing with stomach-churning sharemarket swings, significantly impacting our super balances.
Indeed, the VIX volatility index, also known as the ‘Fear & Greed’ index, has hit (intra-day) levels not seen since the pandemic panic in 2020.
This chart shows its (closing) levels… and probably also the relative level of investors’ concern.
For private investors, the huge challenge is to avoid what I call the share tumble ‘trauma trap’. You know, that almost irresistible urge to sell and move your money to perceived safety?
Which brings me back to the global credit crack up.
Though it was sickness-inducing at the time, here’s what the S&P200 index’s performance looks like over time.
You can clearly see that, as the old adage goes, it’s time in the market not timing the market (and anyone who tells you they can time the market to buy and sell at the right time is, well, full of it).
But you’ll note that the GFC did wipe out 5 years of growth and that the market took longer than that to recover.
You certainly don’t want to entirely sell up when prices are low – because you just can’t handle the psychological discomfort anymore – and buy in again as they’re high again. You’ll crystallise a lot of losses.
Shane Oliver on this: 9 no-nonsense tips to invest for future wealth
But what if you don’t have the luxury of time? What about if you are approaching retirement or indeed have already retired?
4. Check you’re in the right investment mix for your situation
Firstly, the exception to everything I’ve said above might be if you are perhaps 2 years or closer to retirement… for just a small portion of your investments/super.
A safe, sleep-at-night measure going forward might be to hold 2 or so years of drawdown amounts in cash, simply to avoid market fluctuations and just becoming a victim of that timing.
Be cautious about selling more, though, because the flipside of the economic upheaval is that cash is about to lose its shine, too: you’d be going to cash when interest rates are about to tumble – current forecasts are for maybe 4 more cuts this year.
It is about to become far less attractive to hold money in the bank versus the dividend return you can get from (now perhaps cheaper) bank shares.
And – on income – once you have started a super pension, know that you can pause withdrawals until just before the end of the tax year, if you want to leave your money in there a bit longer to recover.
And if you’re 67 or over, you can get a Services Australia assets reassessment if your super has fallen, to potentially boost pension to top up income.
But what is completely key – in, or even the closer you get to, retirement – is that your investment mix is right.
You need to balance the security of your investments with earning enough from those investments.
And that, according to RiceWarner actuaries’ submission to the government’s Financial System Inquiry, means it may be wise to stay more heavily invested in growth assets longer than you think.
Its central premise is that the retirement phase of superannuation is “underdeveloped” – that’s the bit where you are effectively left to make your own investment decisions – and does not meet the “risk-management needs” of many retirees.
It explains that pensioners have 2 primary needs:
- Certainty of cash flows to meet current consumption (living expenses) and available cash to meet contingencies
- Growth of their capital so future cash flow is sufficient to meet future expenditure needs no matter how long they live.
“Neither of these needs or their associated risks can be avoided and both must be managed concurrently. [But] they impose competing investment objectives,” the report concluded.
RiceWarner, for its part, essentially contends that a higher allocation to growth assets through the estimated 30 years of retirement, is often necessary.
So the trick may be…
3. Don’t let the current market situation get into your psyche
With your asset allocation right, and your bit of cash allowing you to live for a couple of years no matter what’s happening to your super balance, you should be a lot more relaxed and comfortable.
You’re in a much better position to ride out whatever happens in the global economy and on the market.
You might even consider trying to play the situation to win. Pre-retirees certainly should…
2. Invest like an expert – adopt the guru gameplay
While now may not be the time to invest a lump sum in the stock market – experts are expecting the fluctuations to persist for a while yet (we are still in President Trump’s 90-day tariff exemption window).
But a concept called dollar cost averaging helps you snare a better average price in volatile market times.
All you simply do is regularly invest the same small amount throughout.
By doing so, you buy fewer investment units or shares when the price is high and more when the price is low. And that means that when markets rebound, you have more units or shares to ride it up.
If you are still working and therefore have contributions going into your super, this is happening automatically for you.
And there are also ways to pay extra into super that don’t cost you as much as you invest.
For example, when you salary sacrifice, the money goes in before your marginal income tax rate (and after, you lose only the 15 percent super contributions rate).
In this way, you could also periodically mop up your unused (up-to-5 years) of unused concessional contribution allowances.
Further, you could tip in more each year via the government’s super co-contribution of up to $500: this is available to people earning less than $60,400 (2024-25 tax year) who pay in $1000 after tax.
And a $3000 after-tax spouse contribution – to someone earning less than $40,000 – nets the payer a $540 tax offset (also in the 2024-25 tax year)…. which could also be squirreled into super while it may be considered ‘on sale’.
Finally…
1. Re-invest dividends (if you don’t need them to live on)…
A huge chunk of the returns any investor makes – if they play it right – is from reinvested dividends.
Called the total return, this far outstrips the simple or pure growth return because it harnesses the power of compounding throughout – the huge advantage from earning dividends on dividends (or interest on interest).
In fact, since 2000, the S&P/ASX200 Index has grown about 4% a year. But the S&P/ASX 200 Accumulation Index – so with reinvested dividends – has returned 8.50% every year.
That's more than double the returns!
Compounding in this way can quickly compensate for immediate stock losses and is ultimately responsible for a significant slice of overall returns on the Australian sharemarket.
So far from getting spooked by wild market times, and self-sabotaging by selling out, in how many ways can you play the current economic craziness to win?
This article reflects the opinions and experiences of the author and does not necessarily reflect the views of Citro. It contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.
Feature image: iStock/Brothers91
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