Blog – Maddern Financial Advisers

Be ahead of the news in accounting, private wealth and finance

Keeping your money safe in volatile markets
Team Maddern
16/Aug/2011

With share markets moving up and down, many people and a few of our Clients wonder just how safe their super/investments are.

Where you are in your life, will shape what you do with your Investments, especially in times like these, e.g. someone who is retired is in a very different position compared to someone who is still employed and contributing to their super.

If you are still contributing to your super – then typically most people take a long Investment time frame and are currently in a strong position to use the volatility in markets to their advantage. This is due in large part because they do not have to draw on their superannuation for a few years to come, and current market circumstances are providing many opportunities to buy while values are low.

Ultimately, Clients will see their value grow because, while we are experiencing some pain from being in the market now, history tells us that in the longer term, the share market has headed in one direction – up. It just takes time.

A way of taking advantage of the short term market volatility is to take out the guesswork. It is very hard, and many experts say impossible, to predict market movements with accuracy, you can use dollar cost averaging. This is where you invest a set amount at regular intervals. This is essentially what you are doing when you regularly contribute to super. By regularly buying units while the price falls, the Investor has been able to buy more units.

If you are close to, or in retirement – in markets like this, the hardest hit people are those who are either approaching retirement, or in retirement. While the market has shown that it always has recovered over time, the question remains – will you have enough time to benefit from the inevitable bounce back?

The key message here is if you can afford the time to stay in the market you will eventually benefit from the bounce back, but you will have to be patient. From a MPW perspective, we would have the vast majority of our retired Clients in conservative settings inline with the MPW lifestages risk profile. We take special care of our retired Private Clients, so hopefully this critical ‘time in market’ factor is less of a concern.

The real cost of cash – during uncertain times like this cash can appear, on the surface as a safe haven. If a client is thinking of moving some of their Investment to lower risk Investments, like cash, then here are some points to consider before you make your final decision:

1. Newton’s law of motion – every action has an equal and opposite reaction – this law also applies to share markets. After each downturn, the market eventually bounces back.
2. So, if a Client places some of their portfolio into cash, when the share market inevitably recovers only the portion of your portfolio in the growth assets (shares, in this case) will benefit.
3. When markets fall, the RBA often cuts interest rates to encourage investment in riskier assets.

Advice is always available to our Private Clients.