In case you haven’t heard, global financial markets have taken a hit lately, and super has been caught up in the turmoil.
Most Australians have their superannuation invested with industry or retail funds, which invest in assets like stocks, bonds, and property.
Rising interest rates and inflation have meant that many of these assets have fallen in value recently, says Jacie Taylor, an independent financial advisor based in Adelaide.
“There’s lots of things putting pressure on the markets at the moment and sending them downwards,” she says.
So, should we be worried? And what can we do to protect our super during periods of market volatility?
We spoke to Ms Taylor and Richard Gough, a financial advisor based in Victoria, to find out.
Why it’s important to have a long-term outlook
While headlines about crashing markets can be scary, superannuation is a long-term investment.
Ms Taylor says it’s important to avoid getting too carried away with short-term market movements, especially if retirement is a long way off.
“If you have decades before you retire, you should look at this like it’s your favorite product on sale at the supermarket,” she says.
“When something goes on sale, you buy more of it, because you know it will be a good idea. It’s exactly the same attitude you should have towards superannuation.”
As you get closer to retirement age, it’s important to plan ahead for corrections and market volatility, Ms Taylor says.
For younger Australians building their super balances, the situation could provide an opportunity to invest at lower prices, Ms Taylor says.
“For anyone who is their 20s, 30s, 40s and early 50s, you’re a buyer — your money is going into super. Whenever there are drops … it’s a good thing,” she says
“It’s not necessarily a good thing if you’re a seller, in the drawdown phase [when you’re withdrawing your superannuation].”
Why it can be dangerous to try to time the market
If you’re worried that the stock market and property prices might fall, for example, you might decide to switch your superannuation from a balanced investment option to cash.
While it might seem like a logical idea, in reality, it’s almost impossible to time the market. Even if you are right, and prices do continue to fall, they could quickly bounce back while you’re still on the sidelines.
“They’ve essentially sold low and bought high, which is the opposite of what you want to do.”
An easier approach is to have a long-term strategy for your superannuation that you can stick to during difficult periods.
As an example, Mr Gough says the Australian share market has returned roughly eight per cent per year over the last 20 years including dividends.
“That includes the GFC, that includes the correction during COVID, and the current correction. You’re still getting 8 per cent on average,” Mr Gough says.
What to consider if you’re thinking about topping up your superannuation
If you’re looking to boost your super balance, and you have some cash available, one strategy could be to make a voluntary contribution.
If you earn under $56,112, you may be able to take advantage of the super co-contribution scheme to boost your balance by up to $500.
If you’re not eligible for the co-contribution, you may be able to claim a tax deduction on your contribution.
“If you’re thinking long-term, you can put some money into the fund before June 30 and claim back a deduction,” Mr Gough says.
“You might have a double win, claim the tax deduction and buy … on the cheap.”
To claim a tax deduction on a voluntary contribution for this financial year, you’ll need to:
- Make sure your fund processes your funds before June 30.
- Fill out a “notice of intent” form to claim a tax deduction, and send it to your super fund.
- Claim your tax deduction when you file your tax return.
Most funds allow contributions via bank transfer or direct debit.
If you’re considering adding to your super, keep in mind you won’t be able to access the money until you meet one of the conditions for withdrawal.
That usually means waiting until retirement age, but first-home buyers may be able to withdraw voluntary super contributions to buy a home under the First Home Super Saver Scheme.
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