WA Super News

Should you switch to a more conservative investment option in volatile markets?

01/04/2020

The outbreak of Coronavirus has caused unprecedented health and economic challenges. For many of us, our priority will be to focus on our employment, our health, and our loved ones. However, many people will also have been paying attention to the period of volatile, negative returns that we have been experiencing.

Table 1: Market Performance to 30 March 2020

Asset Class Index Peak March 30th Peak to current % change
Australian Shares S&P/ASX 300 7116 5127 -27.94%
International Shares MSCI World 2435 1651 -23.06%
Australian Listed Real Estate S&P/ASX 200 REIT 1730 994 -42.55%
International Listed Real Estate FTSE EPRA NAREIT 2561 1715 -33.03%
International Listed Infrastructure S&P Global Infra TR 6018 3729 -29.95%
International Fixed Interest Bloomberg/ Barclays Global Aggregate Bonds 539 511 -5.11%

Source: Market Index, MSCI, FTSE, S&P and Bloomberg

Watching these events unfold, you may wonder what you should be doing with your retirement savings.

In an environment like this, there is often an instinct to attempt to limit losses and avoid further volatility by switching to conservative or defensive investment options, like a Cash Option.

Considerations when switching to a more conservative option

There are three very important considerations when thinking about a switch to a more conservative investment option like Cash:

  1. The first is that, even if you have suffered a substantial loss on paper in recent markets, those losses are locked in if you switch out of your current investment option.
  2. The second point is that many people who switch into a conservative strategy during market downturns do not switch back to a more aggressive strategy later, and therefore miss out on the market recovery when it happens.
  3. The third is that even with switching back into a more aggressive option, getting the timing right, or even approximately right, is incredibly difficult.

The combination of these effects mean that many members end up worse off than if they had just stuck to their original investment strategy.

To illustrate this point, and to demonstrate just how much of a difference to a superannuation account balance a switch to a more conservative investment option could make, we use the example of a member with an account balance of $100,000 who switched to our Cash Option from our MyWASuper investment option at the bottom of Global Financial Crisis (“GFC”) in 2008/09:

Switching to WA Super Cash option in the GFC
Switching to WA Super Cash option in the GFC

 

Why it can pay off to stick to a long-term investment strategy

As you can see from the chart above, sticking to your strategy generally pays off in the long run (i.e over a period of 20 years). WA Super offers a range of diversified options built to suit most members’ risk preferences. If you’re in one of these options, you don’t need to worry about actively monitoring markets and managing your investment choices, as the Trustee has a duty to manage your account in your best interests, and therefore does it on your behalf. Our investment team is constantly working to build portfolios with multiple return drivers and invest in assets that are likely to do well even when investment markets face risk and uncertainty.

 

The information provided contains general advice which does not take into account your specific objectives, financial situation or needs. Before investing, you should consider the appropriateness of this general advice with regard to your personal circumstances. You may also wish to obtain independent financial advice.

Investment returns can go up and down and are not guaranteed. All investments have risk, and past performance is not a reliable indicator of future performance.

For more information on risks associated with investing or before making a decision about WA Super, you should consider your financial requirements and read the Product Disclosure Statement available at www.wasuper.com.au or by calling us on 08 9480 3500.

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