It's a turbulent time for investors, with world share markets jumping all over the place in response to factors which include a trade war with China and civil disobedience in Hong Kong.
Volatility is nothing new, but it does have the potential to worry inexperienced investors. One morning they wake up and the markets are showing a sea of green - they heave a sigh of relief, and hope that the market is resuming its upward movement. The next morning it's all red, and immediately they feel sick in the stomach. They groan, "is this going to be the start of another GFC?"
Those emotions are normal and predictable. But they are blown out of proportion by the media. As soon as the market has a couple of bad days we hear, "it's a fearful time for those about to retire!" It's a nonsense statement, but it feeds on the belief that shares are inherently risky, and should be avoided at all cost.
Think about it. A person who is aged 65 and about to retire with $600,000 in super has pretty good odds of living for another 30 years. Anybody who has studied the history of markets knows there are two certainties: first, the best returns will come from shares; second, anybody investing in shares can expect four negative years out of every 10. This does leave six good ones to take advantage of.
So why is a person about to retire at 65 in a different position to someone aged 75, who is already retired? They both should have many years to look forward to, and they both can expect their portfolios to rise and fall along the way. All that the media's scare-mongering commentary does is make them lose sleep at night.
And then of course we get the worn-out expression, "as a result of market turbulence investors are fleeing to the safe haven of gold." That's another nonsense.
The only reason anybody invests in gold is because they believe that its price in the future will be higher than its price today. Maybe it will, maybe it won't, but as far as I'm concerned investing in gold is a gamble, and the last thing I want to do at my stage in life is to start gambling with my superannuation. For anybody to buy gold, there must be someone who is prepared to sell it: somebody is going to be right, and somebody is going to be wrong. If a punt is what you want, go to the races.
The problem is that too many investors have short memories. In October last year the headlines were: "Shares dive to 12 month low." Within two months they had changed to "Market posts best gain in two years" as the All Ordinaries hit 5662. At date of writing the All Ordinaries was sitting around 6550, which is a gain of around 17% since Christmas. This is a gain enjoyed by those of us who stick with our portfolios and don't try to time the market. But many investors missed out again because they were scared off by the fall last October.
Repeatedly I hear words like "I am going to stick with cash till I get a clear sign that the market is on the way up again." That is a fool's game. The biggest jumps always come after the biggest fall, and they come suddenly. The secret of investing success is to choose good assets and hang in there for the long term.
Question. I am hoping to retire in a year at age 63 - my wife is retired now. We have about $1.6mil in a SMSF and $1million in cash and shares. We have three investment properties worth around $1.6 in total and own our home. There is an outstanding mortgage on the investment properties of $277,000. We don't know whether we should pay off the mortgage before I retire or just keep paying off the loan into retirement. Any thoughts.
Answer. You appear to be a good money manager, so I assume the investment loan is at a rate of no more than 5 per cent. If this is the case you could almost certainly get better than 5 per cent long term by investing the money in good growth assets such as shares. Therefore, I suggest you leave the loan as it is, and let it be gradually eroded by inflation.
Furthermore, I see no need to pay off the loan when you retire - the properties are obviously positively geared so you would appear to be in a perfect position as the properties will keep themselves, and hopefully grow in value. Also I assume your wife is under 65, so you appear to be well placed to contribute more money to superannuation to boost the assets you already have in this concessionally taxed environment.
Question. I am about to start a full time job for half the year. During that time I will turn 75. I understand that employers are not obliged to pay compulsory super for staff beyond that age. If they choose to do so, can my super fund, in pension mode, accept these contributions?
Answer. Cosette Woolley of Superannuation Services Pty Ltd tells me that since 1st July 2013, the age of an employee is not relevant to superannuation guarantee contribution(SGC). SGC is payable regardless of the employee's age unless they are excluded for another reason. You can't contribute to an account in pension mode but an accumulation account can be established for the member to accept the SGC deposits. It just means the Fund is not in 100 per cent pension phase.
- Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. firstname.lastname@example.org