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Financial Happenings Blog
Monday, January 05 2009

Welcome to our first blog entry for 2009.  I am looking forward to what I hope will be a much less gloomy year than that just passed.  (Sorry to be a touch cautious with my use of words here but much better this than having egg all over my face later)  For me personally the omens are good, January 25th is the start of the year of the Ox according to the Chinese calendar.  I was born in the year of he Ox so I hope this makes 2009 a great year for me and more importantly for my clients!!


The first topic for the new calendar year I wanted to address was whether the start of a new year was a good time to reconsider your superannuation investment choice.  An article published in the Sydney Morning Herald on Saturday included data from a report compiled by Sweeney Research based on the responses of 1,000 super fund members aged over 45 years with balances over $50,000.  The data showed that 38% had changed asset allocations within their super funds last year, with 79% of those moving into more conservative options.  (i.e. 30% of those surveyed)


So if you have not already, should you be considering this same alternative?


Sounds like a simple question but the answer is far from simple.  As with most financial decisions, consideration needs to be had of your own personal situation.  This should include thinking through:


  • Your goals leading up to full retirement, e.g.
    • do you want to (and have the possibility to) work part time in the lead up?
    • can you be making extra contributions into superannuation or are there other needs that need to be addressed first?
  • The time until your planned retirement,
    • generally speaking the longer the timeframe, the more suitable it is to be less conservative with your investment choice
  • Your income needs in retirement,
    • what income do you hope to be living off?
  • The possibility of receiving Centrelink benefits in retirement
  • Your expected life expectancy (or put another way, how long you need to be drawing an income from your superannuation assets)
    • reaching retirement is not the end game
  • Whether you have goals of passing on assets to younger generations or charity
    • do you want a lump sum to be able to be passed on to your children or grandchildren or used to support charitable organisations?
  • Your tolerance to volatility in investment markets
    • how comfortable are you seeing your portfolio fall by 10%, 20%, 30%, 40%, 50%


Some suggest a further question to consider is what you (or your final advisor) think will happen to investment returns in the year, 3 years, 5 years etc ahead.  Our approach is that this is not a helpful question to be asking as there is no evidence that even the experts can predict or forecast what is going to happen in the near term.  If you wanted an insight into the empirical evidence behind this assertion please take a look at our Research Based Approach pages on our site.


Instead, a better question to ask is what the probabilities of different investment returns are over relevant timeframes given historical data.


Your answer to the investment choice question should therefore be dependant on all of these considerations and not your gut feeling about future market prospects.


If after careful consideration you think it is worth moving towards a more conservative investment allocation, the next step is to consider how best to achieve this.


The easiest way would be to simply sell down growth assets (shares & property trusts) or switch to a more conservative option (Balanced to Conservative or Growth to Balanced).  Unfortunately this involves selling these growth assets at what we might consider low prices and in doing so locking in the losses achieved through 2008.  If history is anything to go by, growth asset values should rebound.  It will not happen overnight but if history is anything to go by it should occur over time.


A better alternative might be to direct all future contributions and income payments from your investments into a cash alternative and by doing so build up a more conservative allocation over time without realising losses on those depressed growth assets.


If you wanted to discuss your options in more detail please do not hesitate to get in contact.  We offer a free, no obligations, initial consultation and are happy and keen to discuss alternatives.


Wishing you a great 2009.  Go the year of the Ox!!



Scott Keefer

Posted by: Scott Keefer AT 05:18 am   |  Permalink   |  Email
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