Market Volatility FAQs

What has caused such volatile markets?

The current global financial crisis began with US subprime loans when financial institutions lent money to people who couldn't afford the repayments. The loans were repackaged and onsold to other financial institutions numerous times until a hiccup in the system made everyone realise the loan notes were worthless.

Panic spread like wildfire and banks stopped lending to each other. The US Government stepped in to shore up the two biggest mortgage lenders, but then made the crucial decision not to support the biggest investment bank, Lehman Brothers, which collapsed and triggered further crisis which spread to Europe and other countries.

Acting quickly, the Australian Government moved to guarantee deposits in all our banks and announced an injection of $10.4 billion into the economy to stop it falling into recession. These events have had an impact on investments across the board including super funds

Has my super account lost money?

That depends on which fund your money is invested with and the type of option it is invested in.

Most investments are volatile in that they have their ups and downs. As a way of controlling risk, the Quadrant Trustee spreads money among the asset classes. If one asset class is not performing as well as expected then the other assets may help to balance the overall return.

Another way the Quadrant Trustee diversifies is by investing money with different investment managers.

When investing there is a trade off between risk and return as different levels of risk usually have different levels of return.

If you're worried about the movement in the investment markets then less risk may suit you better. On the other hand, the longer your money is likely to be invested the more risk you can generally afford to take.

It's very important to be comfortable with any risk associated with the investment choice you make. You should seek assistance from one of our financial advisors before making any investment decisions.

This isn't the first time super funds have lost money. Aren't there better ways to save for my retirement?

Any saving for retirement is good but super still provides one of the only sanctioned tax breaks available to middle Australians.

Super is the only investment where your contributions and earnings are taxed at only 15 per cent and, when you reach 60, withdrawals are tax free.

With the markets down, your contributions may buy more investment units, thus giving you more "bang for your buck" when the markets rise again. This, coupled with the tax breaks, may make it worthwhile to talk to your financial advisor about boosting super contributions.

Should I switch my money into a less volatile option?

In times of financial turmoil it is easy to hit the panic button, especially if you see your super balance losing ground. Your first thought may be to immediately move your super investments into a more conservative option. This may be a good move for some people but in general the long-term investment strategy that you currently have should still be appropriate even as the markets are falling. This is as long as your personal circumstances, such as your risk tolerance have remained the same.

Don't be scared to keep making voluntary contributions to super and salary sacrificing. Your contributions will buy many more units at this time than when the markets are doing well. If you buy while the price is low you should partially offset the fall in the value of your investments and you will therefore be in a stronger position when the markets eventually bounce back.

Also it's important to remember that super is a long-term investment and you should look at your 5-10 year returns to keep things in perspective.

Who can I trust to give me independent advice?

All financial advisors are required by law to act in the best interest of their client but it's very important to choose an advisor you feel comfortable with.

Quadrant First Pty Ltd has three fully licensed advisors who are members of your community, and understand the financial issues which can impact your lifestyle.

All members of Quadrant Superannuation receive financial advice on their superannuation as part of their membership. Just phone us on 1800 222 209 to make an appointment.

Should I stop making voluntary contributions until the sharemarket settles down?

Depending on your situation, now may actually be a good time to either maintain or increase your contributions. You may be able to give your super a real boost by taking advantage of "buying" when the market is low.

While the share market is down your contribution is buying more units in your superannuation fund and when the market rises again it means that your units will be valued at a higher price.

For example, if you had 100 units and the price of one unit was $1 then your portfolio would be worth $100. If the price of each unit increased to $1.50 then the 100 units you originally purchased would now be worth $150.

Also, when it comes to super, there's "more than meets the eye" as far as your investment goes. In other words, you need to consider tax breaks, and government incentives as well as any investment returns. Keep reading below to find out how you can get the Government to contribute cash to your super account.

I'm almost 60 and was planning to retire soon. What can I do?

Hopefully you met with your financial advisor at least a year ago and have a retirement plan in place. You might still want to retire soon or decide to wait. Before doing anything now you should certainly meet with your financial advisor and run through some "what if" scenarios.

Some people are starting to reconsider their retirement plans and are opting to stay in the workforce a little longer so they can continue to save rather than retire now.

For people who are over the age of 55 a transition to retirement strategy may be a better option than outright retirement at the moment. Transition to retirement has two great options.

It allows you to cut back your working hours, take home the same income and still boost your super. This way you can ease into retirement.

You can also keep working full time and pour more of your salary into super through a salary sacrifice arrangement, draw on a super pension to top up your salary and save money on tax too. This is an excellent strategy for people who are over 60 years of age.

I'm already retired and receiving a super pension but my income is down. What can I do to protect my savings?

Review your investment options in conjunction with your advisor and look at a diversified investment option. This will spread the risk of your money over a range of different assets such as shares, property cash and fixed interest.

Review your super fees and charges. If you and your spouse both have your super with Quadrant we can link the accounts and cap fees once the combined balance reaches $500,000 but you need to apply in writing.

You can also talk to Centrelink to see if you are entitled to receive any assistance or, if already receiving a benefit, whether it may be increased.

Have a good look at your budget to see if cut backs can be made and consider taking less from your super pension until the balance starts improving.

Make use of discount vouchers and the senior cards when shopping - the savings can soon add up.

At the more extreme end, look for part time work to help pay the bills until your super account is "topped up" again.

What can I do in the future to make sure my super savings are protected?

This is a really good question. For baby boomers who will be retiring in the next few years, financial planning has been a bit of an ad hoc issue over the years.

Many people still thought the pension would be sufficient. However, with people living longer and having higher expectations of their retirement lifestyle, this often isn't the case. Some things you could do are:

• Check your risk profile and make sure your investments match your profile
• Know your time horizon
• Diversify your portfolio
• Understand long term results
• Seek advice
• Regularly review your investments
• Try to understand the basics of investing

How can I keep up to date with market developments?

Your super fund or financial advisor should keep you up to date on your investments.

At Quadrant, we understand the importance of keeping members in the loop when it comes to their hard earned savings. We communicate regularly through our fortnightly electronic newsletter called Quadrant eNews, as well as providing a biannual newsletter and other special updates.

If you don't already subscribe to Quadrant eNews, please email us at info@quadrantsuper.com.au with the word "subscribe" in the subject line and you'll receive any news "hot off the press".

Better still, if you're not already why not become a Quadrant member and we'll keep you regularly updated about what's happening with your investments and pass on any tips we have to ease your concerns.