This S&P/ASX 200 Index (ASX: XJO) bear market is a scary time for all investors – but even more so if you're already enjoying your golden years. Being out of the workforce usually means that your superannuation account has reached its zenith for contributions and now has the primary role of providing an adequate stream of pension income to fund your retirement.
A significant drop in the ASX share market therefore causes a lot of worry – especially with the lack of real alternatives out there now interest rates are virtually at zero.
But according to reporting in the Sydney Morning Herald, many retirees out there are making a huge mistake with their super in response to the stock market crash – switching their super to cash assets. According to the report, large super fund manager Hostplus has seen $800 million in funds flood into cash assets out of Australian and international shares since the beginning of March – well after the start of the crash.
What's wrong with cash?
Nothing at all! Cash is the 'safest' investment asset class out there, at least for the short-term.
What is wrong though, is switching your super assets to cash after there is a market crash. If you panic and decide to 'flick the switch' to cash after the stock market has fallen 20 or 30%, all you are doing is 'locking in' that loss.
Yes, the market could fall further and you might sit back and think how 'lucky' you were.
But it can (and if history is anything to go by, will) go back up. And after a 30% drop, there's definitely a lot more potential upside than downside, in my opinion. You won't be feeling so lucky on the other side, believe me!
Switching to cash might have been a good move in January.
It is not in March.
You are locking in losses and locking out any chance of a huge recovery (which often happens at the bottom of a crash), all in the name of safety.
Foolish Takeaway
So don't take the risk with your retirement! The time to switch asset classes is when things are looking good, not in the middle of a market panic. You run the risk of irrevocably damaging your wealth if you retrospectively try and reduce the risk in your portfolio.
