Q: I retired from working life in January this year. My super is mostly tied up with the Government Employees Super Fund (GESB) in Western Australia. I have a retirement income account that I am drawing income from and a secondary, market-linked West State super account. I also have a substantial Gold State Defined Benefit account that is now in a holding pattern, earning about 2 per cent plus CPI rate interest until I decide to move it to a market-linked account.
Right now, I am glad I didn’t move it immediately as it would have been impacted by the volatile share market over the past few months, so it is, in effect, preserved, or quarantined, for now.
My question is, should I invest it now into a market-linked account while the market is low so I am positioned for the hoped-for upswing or should I hold off until we see some normalisation in the business community and we get the hoped for vaccine or drugs to manage effects of Covid-19?
I am fearful of seeing the value of my defined benefit drop if there is further volatility but also mindful that I need to be in the market to take advantage of the upswing from the lowest point to gain maximum growth.
A: This is an interesting question. Essentially, what you are asking is a question of ‘market timing’. In other words, because the market has fallen, should you consider investing, or is it possible the market could fall further and not recover until a vaccine is proven and widely available.
You will, of course, understand that no one can provide a definitive answer to this question because we are in an unprecedented situation about which history provides little or no guidance.
If you are very risk averse, I suggest you stay in the defined benefit arrangement until there is more certainty. You say that you are fearful of seeing a drop in the value of your superannuation. If, in your mind, this fear weighs more heavily than the opportunity of investing when the market is lower, you should not take a risk so as to remain in a secure position.
Also, as you already have some exposure to markets through your market-linked income streams, you would potentially benefit from market improvements from these investments.
Alternatively, you could consider moving a portion of your defined benefit account (if that is possible) into markets now and retain the balance in your defined benefit arrangement against the possibility of further market declines.
Certainly, in my experience, everyone processes risk and uncertainty in different ways. I am comfortable with a little more risk than average and as a result I have added some money into these markets but have held back investing more until things are clearer.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial situation, objectives or needs. That means it’s not financial product advice and shouldn’t be relied upon as if it is. Before making a financial decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services advice.
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