Panic not called for with market slump
Published in The Courier Mail, August 2007
by Erica Thompson and Anthony Keane
For a self-managed super fund nothing beats the sharemarket for ease and liquidity and good returns - Dale Gillham of Wealth Within
THOUSANDS of Australians rushed to set up their own super funds earlier this year to take advantage of generous new rules.
Since then the sharemarket has fallen and rocked the confidence of many DIY investors.
While some may be tempted to bale out and park their retirement savings else-where, Dale Gillham from private investment firm Wealth Within says not to panic.
``For a self-managed super fund (SMSF) nothing beats the sharemarket for ease and liquidity and good returns,'' he says.
``If you're going to retire next week, then it's obviously a different consideration then if you're retiring in 10 years' time. But for most people a super fund should be a long-term investment.''
That means accepting a few bumps along the way.
According to the Australian Securities and Investments Commission, share investors can expect to have a negative annual return once every four years.
For property, it's once every six years and for fixed interest (including bonds) it's once every eight years.
Cash carries no risk (apart from the effects of inflation) but playing the safe option isn't necessarily the key to prosperity.
Investing in assets likely to produce higher returns can certainly increase your risk of negative returns, but choosing lower risk strategies or lower risk assets can leave you with less returns overall. So how do you strike a balance?
``The market downturn reminds us why we diversify,'' says ANZ financial planner Ross Entriken.
``Share markets go up and share markets go down and the trend is always upward over a period of time, but you don't want to be exposed solely to the Australian market or any market for that matter.''
Even bonds, which are considered a very low-risk investment because they are backed by the government, can disappoint.
In three of the past five years, cash has produced higher returns than bond funds.
Marinis Financial group financial strategist Theo Marinis says a key reason for this is because long-term interest rates -- on which bond yields are based -- have been lower than short-term interest rates. But he says fixed interest products can bring stability to your overall portfolio.
``It has been pretty poor returns, but maybe in the next couple of years a 4-5 per cent guaranteed income is better than minus-5 or minus-10 per cent,'' he says.
The other cornerstone of Australian portfolios is property. While there's always a risk prices will fall, investing in bricks and mortar can generate good capital growth and income for your SMSF.
But unlike shares, property is highly non-liquid -- meaning it can't be converted quickly into cash should you need it.
An alternative is listed property trusts, which while not immune to the recent volatility in the markets, ``do pay reasonable dividends'', according to Mr Gillham.
Mr Sadler says managing your own fund gives you the flexibility to modify your asset allocation to meet your needs.
``You can review your investment strategy at any time and make changes to it, so if there is an opportunity, you can take advantage,'' he says.
That's why it's important to not only spread your retirement funds around, but also recognise that taking on some risk may pay off in the long term.
