Dealing with market volatility for soon-to-be retirees

The global fight against Coronavirus, in addition to plummeting oil prices, has caused share markets to be far from stable.

While many investors are being advised to stay the course and wait for markets to recover, for soon-to-be retirees—with different time horizons to people just starting out—this may not be feasible.

But here’s the truth.

If you choose to access your retirement savings as a regular income stream, the money that remains in your account will continue to be invested—and that could last decades. So, taking a long-term perspective is still important.

In this article, we’ll address five tips to consider for soon-to-be retirees.

1. Review your investment strategy

Being clear about your investment goals means understanding the investments that make up your strategy and how they are expected to perform over the long term.

Thinking about your strategy from a factual perspective, instead of reacting with emotion —particularly in response to short-term market volatility—can also prevent you deviating from what your investment strategy was originally set up for.

For instance, if you’re looking to grow your retirement savings to ensure they keep up with the rising cost of living, you may opt for investments that offer good growth potential over long periods of time—such as shares and property. However, assets with higher growth potential also come with greater volatility.

Alternatively, you may be looking to generate a stable income for your retirement so choosing a more conservative approach may be appropriate.

When reviewing your investment strategy, consider the following factors:

- Your financial goals and the savings required to get there.
- The number of years you have to invest (including during retirement).
- The return you can expect from your investments.
- How comfortable you are with volatility.

In other words, your investment strategy should be fit for you and your needs.

2. Consider diversification to reduce fluctuations

Diversification helps to insulate your portfolio from significant share market movements because it reduces fluctuations in your portfolio.

Why?

Essentially it follows the concept of not putting all your eggs in one basket by spreading your money across many asset classes, countries, industries and even investment managers.

The advantage of this is that often, when one area of your portfolio is weak and falling, another may be rising. So, if you have money invested across many areas, changes in their values tend to balance each other out.

3. Be aware of your risk tolerance

It’s always important to consider how you feel about risk and market volatility.

Your risk tolerance depends on how you feel about taking risk and your ability to do so, such as whether you are financially able to wear any falls, so you can stick to your long-term strategy to give it time to recover.

By understanding this, you’ll be better able to make decisions about the structure of your investment portfolio in a way that aligns to you personally. 

Asset classes like shares and property, have higher return potential and experience greater fluctuations in value, than cash or fixed income investments. How much exposure you choose to have in each of these asset classes, may change depending on your level of comfort, especially during periods of investment market instability.

4. Consider delaying retirement

If you’re flexible with your retirement date, one alternative is to consider delaying your retirement by continuing to work, or reducing your hours.

Holding off your retirement, even for a few years, could significantly increase your retirement income. At the same time, it will enable your super to recover with time. And from what we’ve seen in the past with events that disrupt investment markets, markets do eventually improve, but it takes time.

5. Seek support from a professional

Working with a financial adviser can help you design a plan to achieve your financial goals. They may also provide you with a better understanding about the risks and rewards of investing and how you can manage risk as you approach retirement.

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at 20 April 2020 and may be subject to change. The information in this article is general in nature and does not take into account your objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.