Super has been in Cash Fund, what to change it to.

Hi, this time last year I switched our Super accounts into the cash funds as it seemed that the world was about to explode. When the ASX was going well, I didn't want to risk going back to high growth due to being at retirement age and not wanting to risk any capital losses. We have therefore not had any growth for the last year.

Suggestions for switching to a different type of investment or just stay where we are at this time in our lives? Having been burned so much since this investment journey began, I am now much more risk adverse. I know the "investing for dummies" approach is to go to cash for our age group.

 

Sorry to learn of your dilemma. You're not alone in regard to your approach.

However, have a quiet read and think about this which is basically saying do nothing and stop looking if things appear to go bad.

Should You Go To Cash Until The Market Recovers Or Ride It Out?

Some nice watches too further down.

 

Default option usually performs well over time but it does depend on how long you have until you pack up stumps & retire/transition to retirement.

You're a long time retired so super conservative ie cash is not a good long term option.

 

Valid points. The largest hurdle investors face is ........... themselves.

I've no idea how to solve that problem.

 

It makes me cry when I hear people do this. I fully understand why people do it; for most it is FEAR (False Expectations Appearing Real).

Over the years, I have heard of this dilemma often. This is the problem of switching to cash - when does one buy back in.

My sister fully switched her Super to cash during the GFC (I told her not to but she was scared). Some 14 years later, she is still fully in cash. It makes me cry as she is living a poorer quality of life due to her actions. Many times, I have suggested she go back into the market, many times I have recommended that she talk to a FP (even ours), ... but she is frozen with fear, remorse, ...

As you know, I am aware of some of your investing history. I understand some of your pain, some of your fear, ...

I just wish we had hooked up for another coffee catch-up a year ago (I know COVID made that difficult/scary) while you were in a dilemma before you switched.

I would have reminded you that shares produced on average 8-9% growth and 4-5% income per year for the 100+ years.

My belief is no one knows what markets will do in the short-term , at least all me. Some people just know less than others.

My approach in retirement is to keep 2 to 3 years pension payments in cash-type investments and the rest in shares.

I stuck to that approach during GFC. I stuck to that approach during COVID. It was *******’ so difficult to do, especially when you see one’s capital disappearing (on paper).

But both times, it has turned out so much better than the alternative.

To be blunt, that is dumb.

Staying in cash has never be a great alternative.

 

You age isnt mentioned but lets assume you are approaching retirement.

Most funds with superstream options also offer strategies based on "life cycle" as well as specific strategies eg growth, conservative etc. This automatically switches risk down as age increases so the members arent 100% growth asset invested. The strategy may also seek conservative risk. The trade off is higher returns than 0.015% cash rates (prior to fees which may create a loss) and some growth and income. Discuss with your fund and they have a team specifically waiting to take your call. At worst you may have to pay a minor fee for advice but its worth that.

I switched to conservative in January 2020 with news of covid appearing to show a problem emerging. I didnt run to cash as its a no win option. The conservative is hedged and I earned 4% in 6 months and took no loss. In June I switched that to moderate growth. I incurred no loss having bought at market lows and have earned 16% since June 2020. Switching fees between choices were very low and cant always be ignored. I am now looking to revert to the super stream, life cycle option.

 

In the 12 months from the day of the market high just before the COVID crash (19th February 2020 I believe), our share portfolio returned 9% growth and 3% income.

In other words, we achieved the ASX average the year of the global pandemic.

That is what I meant by:

 

Yep, Serious Fear.

We are in our 60s, and we will retire very shortly. Not because we have plenty of funds, far from it, but because my husband has some health issues and he cant keep working too much longer and I'm getting that way myself. He will be 65 in six months time. Mark will probably pay a large proportion of his super into the mortgage when he retires and I will try to keep working my part time job for a few more years. I have a FP in the shadows, must make an appointment but dreading it at the same time.

I thought Conservative was pretty much all cash, anyway I will contact QSuper soon. Thanks for that perspective Paul I also wanted to get the perspective of my peers whom I respect and trust, who have responded above.

 

Once you have your SoA from your FP, if you feel comfortable doing so, why not post their recommendations on this thread. Obviously, in your own words, and obviously not the $ amounts.

I am sure some on PC will offer their 2c worth and give you comfort on what to do.

Just a thought. Good luck with whatever you decided to do. It is way passed your time to get your share of some.

 

Thanks Buddy

 

if you swapped to 'cash' ( i assume short-term debt equities ) in say January/February , that was nice timing

i decided to sell a (little ) bit and stash cash but keep most of the investments running ( VERY patchy growth in that strategy as well ) using that cash in March/April did produce some winners , but not enough to brag about ( so far ) KGN bought in January 2020 proved to be a solid winner ( when bought back THEN )

how long does it take to switch strategies , personally i am watching for a BIG dip before July 2021 using the yield curve inversion signal back nearly a year and a half ago as a guide ( but remember i am already over 90% invested in shares and property )

'risk adverse ' seems rational in your ( our ) age group but i started the investing game late and REALLY needed growth so had to take on SOME risk . ( or rely solely on the Aged Pension from the end of this year )

think of 'cash ' as flexibility , but don't forget to research all opportunities CAREFULLY when they arrive

another strategy to think on , are you looking for income ( supplementation ) or cash to follow your dreams , that will be a deciding factor

good luck , it is rough out there

 

I know I sound presumptuous with this post so I’m utterly sorry if it appears so. But it is fear that’s the cause for most of the predicaments.

Just a few years after we retired, the GFC hit hard. By then we had a property portfolio and a SMSF fully invested in diversified LIC shares. I remember the fear that struck me, but with enough cash buffer to tide us over for several years we decided to sit tight and see out the crisis. Turned out we never had to touch our buffer, and because income was still coming in at the same rate, we were able to buy more shares. I know many retirees got a big hit but in our case the GFC saw us increase our assets quite significantly.

In the months leading into COVID there were loud claims about an upcoming crash. Of course nobody knew what it was going to be but shares were thought to be uber-valued. This time around we did our planning beforehand: cash buffer, funds in offset, how to manage a dip in dividends and rents, how to sit tight and not sell, and a plan to be fully invested when we have spare cash.

The crash was deep but I don’t remember feeling fear this time around. Not that I had overcome all fears but my confidence in the capacity of society to grow long term was greater. It was just a matter of having an anchor for your confidence and waiting for the storm to pass.

As it turned out, our income did take a hit but well within parameters. When the government announced the halving of mandatory super withdrawals over 2 years, I took the released cash to invest into more LICs and ETFs. It was a stroke of luck as it was right at the bottom of the market. Since then shares have bounced back as you know and again our assets have benefited from a crisis.

I don’t think we’ve done anything special to be in this position apart from being steady in our approach. No wheeling dealing, no extreme reactions, just diversification and plain steadiness.

I’d be presumptuous if I asked you to get rid of your fears. No one knows what the future holds. Could there be another crash on the horizon or even a completely new kind of crisis? If the fear (or its opposite, greed) is too great then one is unable to anchor oneself, which leads to sub-optimum decisions and the regrets that invariably follow.

A financial advisor when faced with a client’s fears is bound to come up with an overly conservative plan that limits performance. They say, OK you don’t like risk so I’m going to design a low risk portfolio for you. But a low risk portfolio always carries high risk long term because of the inevitable compounding of low performance.

However in retirement we still have to think long term, even very long term. Somebody retiring at 60 still have to cater for potentially 30+ years. In my case having retired at 50, my retirement is going to be potentially twice as long as my productive years. So by being conservative as per the accepted FP wisdom, I’d forfeit my long term well-being which in turn would also affect my short term well-being.

I guess you’ve realised fear is at the root of the problem. Fear makes the sea look rough but it isn’t necessarily so.

 

I update my Net Worth spreadsheet at the end of every Quarter.

For the last 12 months, the key numbers are:

1. SMSF balance up 30% YoY
2. Net Worth up 14% YoY
3. Total Debt down 68% YoY
4. LVR across property portfolio is down from 42% a year ago to 18.5% now
5. LVR across total assets is down from 27.6% a year ago to 10.7% now

If this is the result of a year that was impacted so much by a pandemic, I am confident we can financially handle anything the world throws at us.

From a financial perspective, it would be great to have a pandemic every year. Just kidding.

 

Hi Angel,

As you know, I am not a FP but would be happy to sit down and talk about your situation and what we are planning and have done.

I'm not too far off retirement myself.

Don't you still also hold some IPs?

AB

 

What rises.Falls.

 

I assume you are referring to debt:

 

Yes, how true... subject to market conditions... completely out of our control

 

I recommend going to a Peter Thornhill day, that will take the fear out of shares. It did for me.
I acknowledge you are older than me though, and that while I have many years before I turn 60 or 65, you don't. Still good for you to do his course. You still both have long time alive though if you live to a normal life expectancy, so I'd plan for that outcome.