All my super is in cash, but the market keeps going up. What do I do?

2 days ago 6

In March, the market had dropped so much that I switched all my super to cash. I’m in my 70s and live off this money. Since then, the market has been going up, but I’m still in cash! I keep hoping the market will come back down a bit and give me a chance to get back in. Don’t know what to do. Help!

Thanks for sharing your experience here, I imagine there will be one or two readers nodding along, having done the same thing.

Defensive assets such as cash are useful in times of turmoil but can look unappealing when markets are booming.

My first observation is that ideally, we wouldn’t be starting from here. This may not be particularly helpful for you now, but I make it for the benefit of others.

Robust academic research demonstrates that the more we fiddle with our portfolios, the worse we do. Mis-timing your entry to markets, or exits, is a proven way to get a poor outcome, as your experience here highlights.

Stock markets exhibit volatility, with a negative year roughly one in every four. This means they go up three out of four, but to enjoy the ups, you have to endure the downs. The reason we generate a higher return on stock market investments is to compensate for this volatility.

If the volatility is unpalatable, there’s always the option of moving to cash, again as you have illustrated. But then we need to accept a lower return, which will affect how long your money lasts and how much you can spend in retirement.

If markets do decline as you are re-investing, remind yourself that you are a buyer, and lower prices are a good thing.

I can’t tell you when the next market downturn will be, other than that there will be one, and almost certainly you will have several market downturns through your retirement. You need to structure your retirement savings to withstand these.

What to do now? Clearly you need to get back in. If just switching back to your previous investment option is too difficult to do, you could consider progressively getting back in – perhaps 25 per cent of the portfolio at a time, at monthly intervals.

That way you would get an average entry price over the next four months. A note here – for this to be advantageous, what you really want is markets to fall.

There is a pitfall. When markets fall, it’s usually associated with some sort of bad news, and it’s easy to then extrapolate that to conclude we’re about to head into the next Great Depression (perhaps as you did early this year).

If markets decline as you are re-investing, remind yourself that you are a buyer, and lower prices are a good thing.

We currently have our home loan fully offset. Should we continue paying double the minimum loan requirements to finish the loan in a couple of years, or reduce our payments to the minimum and slowly pay it down interest-free over several years?

If your loan is fully offset, then you have effectively got this paid off. I’m assuming you are keeping the money in offset rather than simply eliminating the mortgage for reasons of flexibility.

That being the case, you would reduce the mortgage repayments to the minimum because, when the loan balance gets below the amount in the offset account, the excess sitting in the offset is generating a 0 per cent return.

That’s not keeping pace with inflation. Even your everyday account would do better than that. Hope that helps.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [email protected]

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.