During a market downturn, you might be tempted to switch your super away from riskier investments, like shares, and into safer ones. But is it better to switch or

What you need to consider

When it comes to investing and super, everyone has a different comfort level in terms of how much risk you’re willing to accept. It depends on your financial situation, goals, stage of life, and even your personality.

That’s why, when markets fall, everyone reacts differently. While some are quick to get out of the share market, others are content to ride out short-term fluctuations because they’re confident that markets will recover over the long term.

If short-term movements in your super balance are making you nervous, and you’re wondering whether you should switch into less-risky investments, there are a few things you should consider before you do anything.

Why switching isn’t always a good idea

Between February and March 2020, at the start of the Coronavirus pandemic, there was a significant market downturn. With so much uncertainty around, some people were worried about what the pandemic would do to their super balance, so they switched away from shares and into less-risky investments.

Research revealed that the amount of people switching investments was three times higher than usual. But when the markets picked up again, the risk was that these people missed out on the recovery. Over 70% of the switches done between March and April 2020 produced negative outcomes. These people would have been better off if they had stayed with their initial investments and done nothing.1

While that won’t always be the outcome, it’s an important reminder that markets can recover as quickly as they fall. That’s why any changes to your super strategy should be part of a long-term plan rather than a short-term reaction. Switching can be costly if you don’t do it for the right reasons.

What happens when you switch investments?

Let’s say you switch your super by moving away from a Growth portfolio, which has a high allocation to Australian and international shares, and into a Conservative portfolio, which has a high allocation to cash and fixed interest.

When you sell out of an investment while its value is down, you lock in its current price, which makes your losses real and irreversible. But if you stay invested, its value could increase again without you having to do anything.

The importance of diversification

A diverse investment portfolio spreads your risk exposure across different asset classes and markets, rather than putting all your eggs in one basket. This means if one asset class declines in value, other asset classes may experience higher returns and act as a financial buffer.

For example, if your super is invested across several asset classes – like Australian and international equities, fixed interest, bonds and cash – it’s likely to withstand a market downturn better than if you only invested in one of these types of asset classes. That’s why diversification is an important part of any long-term investment strategy.

If you’re tempted to switch investments or change your investment strategy, chat to Bluerocke Investment Advisors first. We can help you work out if it’s the right move for you at the right time.

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As you keep your long-term goals top of mind, remember: we are here to help – with news, insights and helpful resources available on our website to  keep you up-to-date.


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