Tag Archives: Women in Finance

How investors can respond to stock market shocks

By Robert Wright /April 14,2020/

If the threat of a large-scale outbreak of an infectious disease isn’t enough to worry about, the financial implications of coronavirus is also making investors nervous.

You may have read about how the shutdown of industry across China, effectively the world’s manufacturing hub, risks hurting the global economy. You may also have heard about large falls in global stock markets, in addition to the price of commodities such as oil. It feels like there’s been no shortage of alarming twists.

Despite this, a market correction can even be a good thing in the long run. In this article, we share how coronavirus may impact investments and how investors can respond to market shocks.

Why does coronavirus affect stock markets?
There are a few reasons. The first is because it is impacting the ability of companies to produce goods. For example, Apple has already said that factory shutdowns in China will prevent it from getting hold of some of the parts it needs to make iPhones.

The second is in how it affects demand. For example, consumers and companies are cutting back on unnecessary travel, hurting the travel and tourism sectors. Many other sectors are also experiencing a fall in demand, such as the hospitality industry, as more organisations are encouraging staff to work from home.

The third is the impact on investors’ willingness to take risk. Before the coronavirus crisis, the stock market had been performing very well and many investors were sitting on considerable profits. This was despite economic growth having been relatively weak for years.

Many investors had been uncomfortable with how far stocks had risen against this backdrop. Coronavirus has given them the reason they were looking for to bank some of those profits and reduce their exposure to the stock market.

What is the silver lining for investors?
Those with a longer investment horizon can worry less as investing is a long-term game. That is not to say someone with investments should just ignore current volatility though. There are some sensible steps to take, and there might even be opportunities for the brave.
While negative headlines about the stock market can be off-putting, investors should be grateful for them. Every dollar invested today could buy considerably more shares than it would have done at the start of the year.

Five sensible steps to protect your investments

1. Don’t panic – think long-term
It’s important to make considered decisions when adjusting your investment portfolio. An emotional response will very rarely benefit your savings. By staying invested now you could benefit when the market picks up again.

2. Reassess your attitude to risk
What these episodes can usefully do is prompt a re-evaluation of how much risk we are willing to take. It’s all very well charging into the stock market when it’s been going up for years: these corrections remind us there can suddenly be a downside. Many of us will take some risk in the hunt for higher returns, and there are ways to moderate that risk.

3. Reassess your portfolio
Are you happy with the mix of risk? Check you are happy with the proportion of your savings that are in the stock market as opposed to cash or government bonds, and diversify if you are concerned. Some funds offer ready-made diversification by spreading across asset classes. Do your research. You could de-risk yourself by simply holding more cash in savings accounts but be aware of the effect of inflation versus interest rates.

4. Diversify your exposure to the stock market
Even within the portion of your portfolio that is invested in the stock market, be sure that it is diversified in itself. Some people have pet regions or sectors and over-reliance on them can be a set-up for big losses if things go wrong. Either diversify yourself or choose managed funds that are themselves diversified.

5. Drip-feed
By investing a regular amount each month you take away a lot of risk – it is the opposite of trying to time the market. In times of stock market falls the amount you invest will be picking up more units. This means you will ride out much of any market volatility.

Source: Schroders, March 2020

Retirees, COVID-19, and options on the table during a market crash

By Robert Wright /April 14,2020/

The spread of coronavirus has been followed by some of the biggest plunges in share markets since the Global Financial Crisis (GFC), both here in Australia and around the world.

There’s nothing new about a market correction, but for those close to retirement it can be a nerve-wracking experience. If you’ve checked your superannuation balance over the last week, you may need a stiff drink.

For investors, or anyone with super, the general advice is to hold your nerve. Selling out at a low will lock in losses. Market corrections are quite normal and share market pullbacks provide opportunities for investors to buy cheaper stocks that will rise in value over time.

Yet “hold tight” may be easily said to younger or middle-aged Australians accumulating wealth in the super system; but what about our ever-increasing pool of retirees? Do they have the luxury or the option to weather corrections such as this?

For younger Australians currently making regular contributions to super, the impact of large sell off is minimised for two key reasons. Firstly, there is plenty of time to wait until markets recover, and secondly, they also may benefit from buying cheaper assets at the bottom of the cycle.

Yet for retirees there are no such luxuries. While markets are down, every dollar of income drawn on from super is crystallising the loss at a market low point, this is commonly referred to as ‘sequencing risk’ and is the reason why retirees need to be more careful than those in accumulation phase.

We as a species have evolved with embedded natural instincts to flight or fight in times of crisis. The tendency for retirees to watch their investments closer and have a greater care-factor for their investment outcomes makes a lot of sense – they are less capable of replacing these savings. However, as a result, there can be a flight to safety at the worst possible time. Known as ‘behavioural risk’ this is the observation that investors tend to switch out of risky assets near the lows of the market cycle.

The spread of coronavirus and the resulting fall in markets highlights the importance of investors understanding how much risk they are holding in their super or pension account. Australians in or approaching retirement, who have sat up and taken notice of the recent market plunge, may now be wondering, what is the right amount of risk to hold in their investments?

Our view is that the decision to reduce risk needs to be traded off with the impact of potentially lower long-term returns.

With record low interest rates and bond yields, the future return expectations on traditional safe-haven assets is lower than ever, strengthening the concept that if risk equals return, no risk equals no return! And with our life expectancy ever increasing with advances in medicine, science and technology, our retirement savings need to support our lifestyle longer.

Investors looking to reduce downside risk, but concerned about the impact on long term returns, could consider some of the following options:

• Diversifying into non-traditional income generating assets, such as infrastructure assets
• Remaining in equities, but adding protection
• Checking investments are being optimised for retirement tax treatment
• Remaining in growth assets but increase diversification into growth-alternatives
• Consider a strategy that dynamically adjusts the asset mix based on the environment

But most of all, with any of the above, our view is that right now is most likely not the right time to make a reactionary switch. Let the dust settle and move gradually over time.
Retirement is about enjoying life without the obligation to work. For your investments retirement is also about considering your own personal appetite and capacity for risk, the cost of suffering large portfolio losses, and the impact of not earning sufficient return.
It’s a balancing act, but with the right help, entirely achievable.

Source: AMP Capital

Where to seek advice in uncertain times

By Robert Wright /April 14,2020/

With the ongoing escalation of the COVID-19 crisis many people are struggling. Huge changes are happening and we’re all being affected, socially, emotionally and financially.
If your ability to work and earn an income has already been affected, you’re likely to be worried about how you’re going to cover your bills and mortgage and pay for the essentials your family need.

Take care of the present first
Depending on your life stage, you may also have slightly longer term – but still important –financial concerns on your mind.

If you’re close to retirement, you may be anxiously watching how your superannuation balance has been affected by volatile financial markets. If you’ve saved a deposit and have been house hunting, perhaps you’re wondering if now is the right time to buy.

Your long-term goals and strategies can only be built on strong financial foundations. If you can maintain a strict budget and really rein in your cash flow for the duration of this extraordinary period of uncertainty, then you’ll be preserving that stability you need to make methodical progress towards your goals when we all come out the other side of this crisis.

Review your budget and strip out as many non-essentials as you possibly can. Look at deferring your mortgage repayments for three months or asking your landlord to take rent payments out of your bond. Talk to your credit card, mobile phone and utilities providers and see what you can negotiate.

These steps can help you hold onto any cash you have saved for longer. Not only does this give you a greater sense of security, it can turn those savings into enough to last you for months instead of weeks.

It’s now even more important to feel confident in the choices you’re making about money. Getting advice and taking action on your finances can help you experience less stress as things keep changing from day to day. When so many other things seem to be spiralling out of control, you can make a difference to your state of mind by being realistic about what you can change, and what you can’t.

There is no other time when professional advice is more valuable than it is now. So if you have a financial planner, talk to them. Ask them whether now is the right time to go ahead with that property you’re buying or how to manage your retirement plan if your investments have taken a hit. And if you don’t have that professional support, make sure you’re doing lots of research and thinking things through.

Source: FPA Money & Life

Can I go back to work if I’ve already accessed my super?

By Robert Wright /September 02,2019/

When you access your super at retirement your super fund may ask you to sign a declaration stating that you intend to never be employed again. But there may be compelling reasons why someone would subsequently return to work.

According to the Australian Bureau of Statistics (ABS) the most common reasons retirees return to full or part-time employment are financial necessity and boredom. Regardless of your reason for returning to work, there are certain rules you should be aware of.

What are the superannuation retirement rules?

You generally will only be able to access your super if you’ve reached your preservation age and retired, ceased an employment arrangement after age 60, or turned 65. If you’re thinking about returning to work after retirement, there are rules about super you may need to be aware of depending on your circumstances.

We look at some of the common situations below.

I have reached my preservation age but am less than age 60

If you’ve reached your preservation age and wish to access your super, you would usually be required to declare that you’re no longer in paid employment and have permanently retired.

If your personal circumstances have since changed, it is possible for you to return to the workforce, however your intention to retire must have been genuine at the time, which is why your super fund may have asked you to sign a declaration previously stating your intent.

I ceased an employment arrangement after age 60

From age 60, you can cease an employment arrangement and don’t have to make any declaration about your future employment intentions.

If you happen to be working more than one job, ceasing just one will meet the requirement and you can continue working in the other.  You can choose to access your super as a lump sum or in periodic payments (which you may receive via an account-based pension).

If you’re in this situation, you can return to work whenever you like as you wouldn’t have needed to declare permanent retirement before accessing your super.

I’m 65 or older

When you turn 65, you don’t have to be retired or satisfy any special conditions to get full access to your super savings. This means you can continue working or return to work if you have previously retired.

What happens to your super if you return to work?

Regardless of which of the groups above you fall into, if you have begun drawing a regular income stream from your super savings, you can continue to access your income stream payments whether you return to full or part-time employment.

If you haven’t actually accessed your super but have met one of the retirement conditions of release (and advised your fund of this) then your super will generally remain accessible if you return to work.

Meanwhile, it’s important to note that any subsequent super contributions made after you return to work will generally be ‘preserved’ until you meet another condition of release (unless you are aged 65 or over).

Can I access my super at 55 and still work?

In the past, Australians could access their super from as young as 55, but the preservation age is gradually increasing to age 60 and only people born before 1 July 1960 reached their preservation age at 55.

Regardless of your preservation age, you must meet certain criteria before you can access your super, as outlined above. However, if you’re age 60 or over, these criteria simply mean you need to end an arrangement under which you’re gainfully employed.

Rules around future super contributions

Your employer is broadly required to make super contributions to a fund on your behalf at the rate of 9.5% of your earnings, once you earn more than $450 in a calendar month.

This means you can continue to build your retirement savings via compulsory contributions paid by your employer and/or voluntary contributions you make yourself.

However, if you’re aged 65 or over, and intend on making voluntary contributions, you must first satisfy a work test requirement showing that you have worked for at least 40 hours within a 30-day period before you are eligible to make voluntary contributions in a financial year. Voluntary contributions can’t be made once you turn 75 and the last opportunity is 28 days after the end of the month where you turn age 75.

Effects of withdrawing super on your age pension

If you’re receiving a full or part age pension, you’d know that Centrelink applies an income test and an assets test to determine what you get paid. Your super or pension account will be included as part of your age pension eligibility assessment.

Any employment income will also be taken into account as part of this assessment, so make sure you’re aware of whether your earnings could impact your age pension entitlements.

For those eligible for the Work Bonus scheme, Centrelink will apply a discount to the amount of employment income otherwise assessed.

Source: AMP, 2019