Retirees should stay invested and avoid cashing out despite current market volatility as a result of the COVID-19 pandemic, an investment expert has said.
BetaShares senior investment specialist Roger Cohen said Australian retirees worried about their superannuation balances and savings should not allow market fears caused by the coronavirus pandemic to drastically change their investment decisions.
Those retirees thinking of selling and cashing out of the market in response to the current volatility might find themselves at a disadvantage when the market eventually recovered, Cohen added.
“This is where rational and irrational behaviours can have a significant impact on the financial well-being of retirees,” he said.
“The decisions they make during this unprecedented event could make or break their retirement plans. It may leave some effectively ‘retirement trapped’ by their irrational decision-making.
“A panic reaction will cause many to sell at the bottom or on a bounce. They will not benefit from a subsequent recovery.”
Highlighting the higher number of SMSFs previously set up by retirees and pre-retirees in response to the global financial crisis (GFC), he warned against similar reactionary behaviour as a result COVID-19.
“Many SMSFs were not well governed or advised. Coming out of the GFC, they had large allocations to cash and therefore missed out on the recovery in equities,” he noted.
Retirees choosing to stay invested during this period of uncertainty would benefit from using multi-asset exchange-traded funds (ETF) or following model portfolio allocations available from ETF issuers in order to monitor and manage their asset allocation, he said.
“Those with externally managed assets need to trust their investment manager or financial adviser, and not look at the performance day to day. For self-directed investors, behaviour and risk appetite will be tested. The wild swings in equity markets over March have resulted in many people selling at a bottom and making difficult decisions in an unprecedented environment,” he added.
“Many retirees will see their currently reduced super balances. I would suggest they look back at the GFC and ask themselves the question: ‘What should I have done then?’
“If the answer is along the lines of: ‘If only I had remained invested or had made different choices,’ take heed. We will come out the other side of this. Base your decisions on that, rather than on the moment.”