It's funny how you never hear people talk about their superannuation until there's some good old-fashioned volatility in the markets. Unfortunately, it's normally not things which I find encouraging to hear.
See, some people get the idea that when the share market is crashing, it's then a good time to convert the capital in their super funds from ASX shares to cash or fixed-interest investments. You know, so they 'don't lose any more'.
This is a terrible idea and a terrible way to treat your retirement savings. Here's why.
When people start realising the share market is 'crashing', it's normally after the markets have already lost a healthy chunk of their value, say 10-15%.
By the time they convert their shares to cash within their super fund, it might be at 20%. So you're selling your assets at a 20% discount and going to cash, locking in a substantial loss.
People usually decide to go back to shares when the markets are recovering, too. Some of the best days of positive returns in the share market often come after days of heavy selling. So it's highly likely that anyone who is trying to convert their cash back into shares will miss most of these days.
What's really happening is losses are being locked in, and gains locked out. It's an awful way to invest.
What should you do with your super if there's a market crash?
Well, if you're more than 10 years away from retirement, either do nothing or add more cash! You have plenty of time to ride out any future crashes and benefit from buying more shares when they're on sale. Playing around with your super fund when there's volatility in the markets will not help your retirement fund at all.
If you're nearing retirement and wish to be a little more conservative with your capital, the time to put this in motion is when times are good, not in the middle of a market crash. Yes, this will take a small amount of foresight and might involve giving up some potential gains. But that's the price of reducing volatility – there's not really a free lunch here.
So have a think about what you would do if the markets fell 15% next week. Hopefully, the answer is nothing but if it isn't, make a plan now so you don't have to when it's too late!
