Yield-hungry investors and proposed super changes create perfect storm for portfolio panic

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People who tinker with their retirement savings strategy because of short term considerations – such as market movements or the threat of legislative change – are taking a serious risk with their financial future, said Michael Hutton, head of wealth management at HLB Mann Judd Sydney.

“We are seeing a number of people getting very worried at the thought of the proposed changes to superannuation and how this will affect their ability to save for their retirement,” Mr Hutton said.

 “Coming at the same time as the cash rate reaching a new low, people are understandably concerned about how best to generate an income in their retirement years.

 “But it is important that people don’t panic and start making wholesale changes to their long-term investment strategies, including their superannuation strategies.

 “For instance, while many of the proposed super changes were unexpected and are likely to have long term consequences, they don’t change two basic facts about superannuation,” Mr Hutton said.

 “Firstly, despite the ongoing tinkering, superannuation remains the most tax-effective investment vehicle for retirement. So those who have spent years building up their superannuation, under the rules of the day, can be assured that they have done the right thing.

 “Secondly, superannuation should still be seen a long-term investment strategy, not one where investors should be chopping and changing their approach to their investments.”

 He said that while some more equity investments might be a worthwhile consideration for some, particularly those heavily invested in cash, any such changes need to be in moderation.

 “If investors do keep trying to chase yield, the most likely outcome is that they will reduce the diversification within their portfolio, and increase risk.

 “The key for pre-retirees and retirees is to find a balance between growth, capital preservation and yield.

 “Being able to generate a regular income while at the same time maintaining capital at a healthy level, is the key.

 “There is no sure-fire strategy to achieve this, and no quick-fix – it is simply a case of remaining focussed on long-term investments, ignoring the market noise as much as possible, and maintaining good diversity within their portfolios.

 “Investors who can achieve this will be best placed to achieve a comfortable retirement, regardless of the government’s ongoing changes to the superannuation system.”

 However, supplementing a superannuation fund with other investment structures is becoming an increasingly attractive option for many investors, particularly those who have been unable to build up sufficient wealth into superannuation due to the ever decreasing contribution limits, Mr Hutton said.

 “Another consideration for some people might be to look at options outside of superannuation, such as family trusts, to complement their retirement savings strategy. Family trusts are enjoying a resurgence as people look for additional reliable and tax-effective investment structures.

 “With superannuation as the main retirement savings vehicle, and a family trust as a back-up, people will have less cause for concern about any future changes by the government,” Mr Hutton said.

 

HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association. 

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For more information please contact:

Michael Hutton
Phone: 02 9020 4193