The following case studies relate to our real-life clients who experienced a challenge most of us will face- when market falls cause your superannuation balance to drop.
We discuss here the challenges our clients faced, our response/ solutions and the outcomes.
Who were the people involved?
Our first client- Michelle, is a 55-year-old pre- retiree who is still currently working for income and building assets including her superannuation towards retirement in a decade. Michelle is an intelligent and experienced technical professional and well regarded in her field. Before the market fall to be discussed she had accumulated approximately $1M in her superannuation fund. Michelle fit a ‘growth’ investor profile with approximately 75% of her super in growth assets like shares and property and the remainder in defensive assets, like cash and bonds (this is typically the most common default investment mix in super funds for working Australians).
Our second client- John, is a 67-year-old retiree who is no longer working and whose primary income source is the government age pension. He has a small nest egg in his superannuation designed to provide him with an annual income supplement for major bills and lumpy expenses. In terms of investing John fit a ‘balanced’ profile and so had an even mix of both growth/ defensive assets in his superannuation. At the time of the market fall his superannuation balance was approximately $150,000.
What happened?
Shortly after a market fall both John and Michelle reached out to us with concerns, but of a different nature
Michelle’s superannuation balance had reduced to $750,000 and she was worried about losing further. She felt that market timing was perhaps possible and by switching her investments in superannuation to cash it would limit further reduction in her balance. Michelle also discussed re-entering the market again later and switching her investments back to growth assets (like shares and property) in her super once the market began recovering. Michelle insisted she was trying to manoeuvre this market event tactically; however, we could sense an emotional response clouding her judgement.
John on the other hand- was admittedly emotionally affected by this market event and was concerned. His super balance had reduced to $128,000 over a short period from $150,000 months before. What if the investments never recover? This is my last nest egg, and I cannot add more to it. These were some of the voiced concerns. Making matters worse was the fact that members of the John’s family were urging hm to sell his superannuation to cash and putting doubts in his mind.
What did we do?
Firstly- we listened.
In counselling our clients- we provided an outlet for them to express their concerns and emotional responses without judgement.
We provided them with an objective expert who supported them when they needed it most.
We gave our clients context for what was happening- that market falls were expected, normal and always recover. We discussed past events such as the global financial crisis and how we had steered clients through that event and other market events in the past successfully.
As well as sharing these past experiences we provided a curated combination of expert third party commentary and reassuring conversations. Some clients want the facts and the numbers, others want a comforting voice of reassurance – we provide both.
We discussed the purpose of the investments in superannuation and what they were for – ie we linked them back to their long term goals. For Michelle her goal of accumulating assets over 10 years until the start of retirement had not changed. For John his goal of receiving an annual income boost had not changed. As these goals hadn’t changed then neither should the plan or our response.
We discussed how market timing is fraught with danger and that no one can repeatedly time when to enter and exit markets. Also, that if they sold down to cash now- they would permanently lose money and make paper losses real losses.
John’s money would take a permanent blow and never have the earnings capacity it needed to fund his goal of an annual income booster.
Michelle would miss out on investing her super contributions into these market linked assets while they were temporarily down. And when would she ever feel comfortable to re-enter the market? Would it be after it had recovered half, three-quarters? The fact is we would never know the when was the true ‘bottom of the market’ until long after the event when recovering gains had already been made.
Instead, staying invested in a diversified superannuation investment mix which blends assets with different characteristics- can help to withstand changing market and economic conditions.
Staying the course would provide us with the long-term outcomes we sought.
We also focussed on what we could control- and how we had set an investment asset allocation in advance to limit risk. For John that meant only 50% of his super was invested in market linked investments and Michelle 70% was invested in market linked investments. And we discussed how we had already minimised the superannuation and investment fees to a minimum.
The Outcome
We provided many calls and emails with both clients over this period, and we are happy to say both Michelle and John did not sell their investments.
Michelle’s superannuation recovered fully and has since grown further. We helped her to prevent a $250,000 mistake! She continues to invest into her superannuation fund and is on track to build a much larger balance in the future for her ideal retirement.
John’s superannuation recovered back to its pre-market fall balance. We helped him to prevent making a permanent 20% loss. Instead, his superannuation continues to provide his annual income booster and he has the confidence to lean on us for support along the way.
We have since had further reviews with both clients and discussed the event. We have refreshed on their goals and the investment profile that they are comfortable with.
Michelle and John are still on the right path to meeting their retirement objectives with our help.
How about you?
What did you do when the market fell, and your superannuation dropped ie during the GFC or Covid 19 pandemic?
If you do not have an objective third party expert- who has your best interests are heart and can coach you through these bumps along the way- please get in touch with us.
Note – some personal information including names have been changed for privacy reasons.
The information contained on this site is general in nature and has been prepared without considering your objectives, financial situation or needs. You should, before acting on any advice, consider its appropriateness to your circumstances (including your objectives, financial situation and needs). You should also consider the relevant PDS before making any decision about any product.
