Managing the impact of volatile markets on your retirement savings

For retirees, satisfying your income needs today remains a top priority. But equally as important are your income needs for the future.

In times of investment market instability, as we’re currently experiencing due to the impact of Coronavirus on global share markets, it’s easy to lose sight of this.

In this article, we’ll address some areas to keep in mind when your retirement savings are being affected by heightened volatility in share markets.

Review your investment strategy

In uncertain times like this, it’s critical to remind yourself what your retirement investment strategy was originally set up for.

This means being clear about the type of investments that make up your strategy, and how they are expected to perform over the long term.

It’s also important to think about your strategy from a factual perspective, instead of reacting with emotion — particularly in response to short-term market volatility — as it may prevent you deviating from your goals.

Growing your savings

If your plan has been to grow your retirement savings to keep up with the rising cost of living, you may have opted for investments that offer good growth potential over long periods of time—such as shares or property.

As a result, your portfolio is more likely to be experiencing greater volatility due to the impact of Coronavirus on share markets.

Generating a stable income

Alternatively, you may have chosen to structure your strategy to generate a stable income and therefore opted for a more conservative investment approach. In this case, you’re less likely to be experiencing significant volatility in your portfolio.

Separating growth-focused and stability-focused investments

A popular strategy for retirees is to ‘bucket’ short-term income needs in more stable investments, separate from future income needs which are invested in more growth-focused assets. That way, in times of market instability, the longer-term, growth-focused investments can be left untouched to give them time to benefit from any market rebound. Sometimes it can take many years before investments return to previous highs.

Be aware of your risk tolerance

It’s always important to consider how you feel about risk and market volatility.

Risk tolerance depends on how you feel about taking risk and your ability to do so, such as whether you are financially able to wear any falls so you can stick to your long-term strategy to give it time to recover.

By understanding your risk tolerance, you’ll be better able to make decisions about the structure of your investment portfolio in a way that aligns to you personally.

During periods of investment market instability, how much exposure you choose to have invested in different asset classes may change depending on your level of risk tolerance.

Consider diversification to reduce fluctuations

Diversification helps to insulate your portfolio from significant share market movements because it reduces fluctuations in your portfolio.

It follows the concept of not putting all your eggs in one basket by spreading your money across many asset classes, countries, industries and even investment managers.

The advantage of this is that often, when one area of your portfolio is weak and falling, another may be rising. So, if you have money invested across many areas, changes in their values tend to balance each other out.

Consider reducing your pension payments

One way to help reduce the impact of share market volatility on your savings, if you’re accessing it as an income stream, is to adjust your periodic withdrawal amount.

From 1 July 2019 to 30 June 2021, the minimum pension amount has been halved for people of all ages. This means if you’re under 65, you’re only required to receive income payments of 2% rather than 4% of your account balance in a year. For people aged 65-74, it’s now 2.5% as opposed to 5%.

If your pension payments are at least equal to this reduced amount, you can ask your pension provider to reduce or stop any further pension payments for the rest of the financial year.

Seek support from a professional

Working with a financial adviser can help you design a plan to achieve your financial goals. They may also provide you with a better understanding about the risks and rewards of investing and how you can manage risk in your retirement savings.

Dealing with market volatility for soon-to-be retirees

The global fight against Coronavirus, in addition to plummeting oil prices, has caused share markets to be far from stable.

While many investors are being advised to stay the course and wait for markets to recover, for soon-to-be retirees—with different time horizons to people just starting out—this may not be feasible.

But here’s the truth.

If you choose to access your retirement savings as a regular income stream, the money that remains in your account will continue to be invested—and that could last decades. So, taking a long-term perspective is still important.

In this article, we’ll address five tips to consider for soon-to-be retirees.

1. Review your investment strategy

Being clear about your investment goals means understanding the investments that make up your strategy and how they are expected to perform over the long term.

Thinking about your strategy from a factual perspective, instead of reacting with emotion —particularly in response to short-term market volatility—can also prevent you deviating from what your investment strategy was originally set up for.

For instance, if you’re looking to grow your retirement savings to ensure they keep up with the rising cost of living, you may opt for investments that offer good growth potential over long periods of time—such as shares and property. However, assets with higher growth potential also come with greater volatility.

Alternatively, you may be looking to generate a stable income for your retirement so choosing a more conservative approach may be appropriate.

When reviewing your investment strategy, consider the following factors:

– Your financial goals and the savings required to get there.
– The number of years you have to invest (including during retirement).
– The return you can expect from your investments.
– How comfortable you are with volatility.

In other words, your investment strategy should be fit for you and your needs.

2. Consider diversification to reduce fluctuations

Diversification helps to insulate your portfolio from significant share market movements because it reduces fluctuations in your portfolio.


Essentially it follows the concept of not putting all your eggs in one basket by spreading your money across many asset classes, countries, industries and even investment managers.

The advantage of this is that often, when one area of your portfolio is weak and falling, another may be rising. So, if you have money invested across many areas, changes in their values tend to balance each other out.

3. Be aware of your risk tolerance

It’s always important to consider how you feel about risk and market volatility.

Your risk tolerance depends on how you feel about taking risk and your ability to do so, such as whether you are financially able to wear any falls, so you can stick to your long-term strategy to give it time to recover.

By understanding this, you’ll be better able to make decisions about the structure of your investment portfolio in a way that aligns to you personally.

Asset classes like shares and property, have higher return potential and experience greater fluctuations in value, than cash or fixed income investments. How much exposure you choose to have in each of these asset classes, may change depending on your level of comfort, especially during periods of investment market instability.

4. Consider delaying retirement

If you’re flexible with your retirement date, one alternative is to consider delaying your retirement by continuing to work, or reducing your hours.

Holding off your retirement, even for a few years, could significantly increase your retirement income. At the same time, it will enable your super to recover with time. And from what we’ve seen in the past with events that disrupt investment markets, markets do eventually improve, but it takes time.

5. Seek support from a professional

Working with a financial adviser can help you design a plan to achieve your financial goals. They may also provide you with a better understanding about the risks and rewards of investing and how you can manage risk as you approach retirement.

Insurance inside super — should you keep it?

If you’re a member of a super fund, it’s more than likely you have insurance through your super. We’ve identified some key things to ask to yourself if you’re trying to determine if you should keep it.

If you’re a member of a super fund, it’s more than likely you have insurance through your super.

The cost of this insurance is deducted from your super account balance – so you’re effectively paying for it – unless your employer is covering the cost on your behalf.

Often insurance can seem overwhelming, especially when it comes to deciding whether to hold on to it, or adjust it so it better suits your needs.

To help you, we’ve identified some key things to ask to yourself when it comes to your insurance inside super.

New rules affecting insurance inside super

Before we identify some key questions to ask yourself, it’s important be aware of recent changes to insurance inside super that came into effect on 1 April 2020.

The government has implemented changes affecting members with a super balance under $6,000. The idea behind the changes is to ensure that these members retain as much of their super savings as possible – and it’s not eroded by premiums for insurance that they don’t know about or might not need.

As a result, you now need to ‘opt-in’ for insurance if you want to keep it when you’re under the age of 25 and your super balance is under $6,000. If you don’t opt-in for it, it will automatically be switched on when you reach 25 and your super reaches $6,000.

1. Is insurance inside super something you need?

Deciding whether you need to have insurance, is something that only you can answer as it really comes down to your own personal circumstances. We’ve listed some scenarios below to help you with this.

Scenario 1 — dependants

If you have people depending on you financially, and you passed away unexpectedly, could your dependants continue to live the same lifestyle without you? How about if you were ill, or injured, and as a result unable to work for a period of time, or permanently – what then?In these cases, having Death only, or Death and Total & Permanent Disability insurance, could help to provide financial security.

Scenario 2 — no dependants

If you don’t have anyone financially depending on you, but you were unable to work for an extended period of time due to an illness, would you be able to cover your expenses without an income? If not, perhaps Income Protection insurance is something to consider.

2. Which types of insurance inside super are most appropriate for you?

There are three main types of insurance cover available through your super.

Death insurance cover

This type of cover is designed to provide your family, or any nominated beneficiaries, with a sum of money if you were to pass away. It may also come with Terminal Illness cover which provides financial support if you are diagnosed with a terminal illness.

Total and Permanent Disability (TPD) cover

If you were unable to work ever again in an occupation that you are suited to, because of a disability, this type of cover pays you a lump sum which could help to pay for things like your living expenses or repay any debt you may have, such as mortgage.

Income Protection (IP) cover

If you’re injured or suffer an illness, or have a disability and are unable to work for a temporary period of time, this cover would provide you with a short-term income stream to help you pay for things like living expenses or cover debts.

3. How much insurance inside super do you need?

Insurance calculators are a good starting point in determining how much insurance you may need, depending on your personal circumstances.

You may also want to consider speaking to a financial adviser as they’ll be able to assess your situation and advise which types of policies could work best for you.

Some things you may want to take into account include:

  • The amount you’d need to cover your current lifestyle if you were unable to work for an extended period or permanently
  • Whether you or your family could rely on other financial resources if you were unable to work or passed away
  • Any debts you have such as a mortgage.

Bottom line: when deciding if having insurance inside super is beneficial, it really comes down to being clear about your own circumstances and what’s best for you. A financial adviser may be able to help in making this decision.


Magic money tree – QE & money printing and their part in the coronavirus economic rescue

Key points

  • Central bank support to ensure the flow of money and credit through economies is an essential part of the global and Australian coronavirus economic rescue.
  • This has increasingly involved quantitative easing which entails the printing of money.
  • Higher inflation is an obvious risk from money printing, but it’s unlikely to become an issue until economic activity more than fully recovers.


Along with massive fiscal stimulus globally to deal with the impact of coronavirus shutdowns on the economy, the last month or so has also seen massive monetary easing – with the latest being the US Federal Reserve expanding its emergency lending program to $US2.3 trillion. The economic shutdowns are necessary to slow the spread of coronavirus to take pressure off the medical system in order to minimise deaths. And because this will lead to a huge detraction in economic activity – we expect Australia and other developed countries to see a 10 to 15% fall in GDP centred on the current quarter – businesses, jobs and incomes need to be protected as far as possible through a period of hibernation so the economy can return to “normal” as quickly as possible once the shutdown ends. Hence government measures to support businesses, jobs and incomes via wage subsidies, payments to businesses, tax relief, rent relief etc. Such measures add to more than 4% of global GDP and are still rising.

Source: IMF, AMP Capital
Source: IMF, AMP Capital

In Australia, fiscal stimulus is now up to around 10.5% of GDP and in the US it’s around 7% with more on the way.

However, monetary stimulus is also necessary to take pressure off indebted households and businesses and to ensure the flow of money and credit through the economy. Initially some of the focus was on rate cuts, but rates were already low or around zero, and so increasingly we are seeing quantitative easing (QE) or money printing. But surely this is unnatural – money doesn’t just grow on trees? Some fret this can only lead to hyperinflation. This note looks at what QE is and how it entails printing money, why it’s being used and what the risks are.

Summary of recent moves by major central banks?

But first here is a quick summary of recent major monetary policy easing measures since February:

  • The Fed has cut the Fed Funds rate by 1.5% to a range of zero-0.25%, announced unlimited buying of Treasury bonds and mortgage backed securities and announced a total of $US2.3trn in lending facilities that leverages up $US454bn in risk capital (which will take losses if needed) provided by the US Government. The latter will be used to lend to small and medium enterprises (through banks) and to state and local governments and for the purchase of investment grade and some high yield bonds, collateralised loan obligations and commercial mortgage backed securities.
  • The European Central Bank has reinstated quantitative easing totalling €870bn by year end with flexibility over the assets it can buy which will aid countries like Greece and Italy and expanded its low-cost bank funding program.
  • The Bank of England cut rates to 0.1% and started a £200bn bond buying program, more bank funding and a bit of direct government financing via a Ways & Means Facility (although this may be to smooth cash flows around bond issuance).
  • The RBA has cut the cash rate by 0.5% to 0.25%, set a target for the 3 year bond yield of 0.25% to be supported by buying Government bonds and announced low cost funding for banks (called a Term Funding Facility) amounting to at least $90bn at just 0.25% interest for three years.

These all involve quantitative easing and hence money printing.

What is quantitative easing?

Quantitative easing involves a central bank printing money and using that money to buy government and private sector securities or to lend directly or via banks to pump cash into the economy. So this covers the Fed’s bond buying program and its lending facilities and in Australia it covers the RBA’s buying of Australian Government bonds and its low-cost funding of banks. It all shows up as an expansion in central banks’ balance sheets which shows their assets and liabilities. The printed money or cash increases the “liability” side of the balance sheet and the increased holding of bonds, private securities, direct loans or funding of banks shows up on the “asset” side. Rough estimates are that the moves announced over the last month or so will see the Fed’s balance sheet more than double to around $US11 trillion by year end or 50% of US GDP and the RBA’s balance sheet nearly double to around $340bn by year end or 17% of GDP. Of course, the Bank of Japan’s balance sheet dwarfs that of the Fed, ECB and RBA reflecting its massive quantitative easing program since 2012.

Source: Bloomberg, AMP Capital
Source: Bloomberg, AMP Capital

So why do quantitative easing?

Normally central banks implement monetary policy by changing interest rates. But when interest rates have already fallen to zero, in order to support the economy central banks have been turning to boosting the quantity of money in the economy. Hence quantitative easing. The current expansion in quantitative easing (and its adoption in Australia) reflects:

  • A need to ensure that short term money markets continue to function – as lenders became reluctant to lend into money markets last month the Fed, RBA and other central banks injected short term funds into the markets. This should be temporary and will reverse as markets settle down.
  • A desire to ensure that sound businesses continue to receive funding. This has seen the Fed adopt a range of lending programs and the ECB and RBA provide low cost funding for banks so they can continue to lend to their customers.
  • A desire to ensure that the cost of funding remains low. A month ago Government bond yields started to rise (as fund managers were selling their liquid winning assets to meet redemptions), corporate borrowing rates surged as investors feared defaults and Europe was seeing a blow out in the gap between bond yields of fiscally weaker countries like Italy versus Germany. So, the Fed has been pumping money into the US bond and credit markets to push yields back down. The ECB has done something similar in Europe by buying Italian bonds. And the RBA announced a target of 0.25% for the 3-year bond yield and started buying bonds to support that target. Keeping bond yields down means lower fixed rate borrowing rates on business loans and mortgages.
  • To the extent bond buying keeps bond yields down it makes it easier for governments to fund their rising budget deficits.
  • Finally, a lesson from the 1930s is that it’s very important to stop the money supply from shrinking. The 1930s saw multiple bank failures which accentuated the economic depression as people lost their savings and as a result the money supply collapsed. Printing money and expanding cash in the system helps make sure this does not occur.

But isn’t this helicopter money? What about MMT?

Not quite – although the Bank of England may be straying down this path. The BoE aside, as currently practiced central bank bond buying involves the central bank using printed money to buy already existing government bonds in the secondary market (eg from banks, super funds and foreign investors). So, it’s not directly providing the money to the government and those bonds must (at least in theory) still be paid back when they mature. So, it’s not really “helicopter money” – which would see a central bank directly give money to the government to spend.

Modern Monetary Theory (MMT) argues that if a country borrows in its own currency (which Australia does – so there is no risk of a currency crisis) and there is more risk of deflation than inflation then there is nothing wrong with using money printing to finance government spending which can be allocated in an equitable way. I have some sympathy for this. The trouble is that politicians would be at risk of becoming addicted to the flow of central bank money resulting in wasteful government spending and eventually hyperinflation. So central banks & governments are wary of doing this. At least for now – as this resolve may fade the longer inflation remains very low (and may already be fading in the UK!).

But of course, QE is aiding the government’s stimulus program by helping to keep bond yields down. And unlike in the period of quantitative easing seen in the US and Europe last decade which was accompanied by fiscal austerity, exploding budget deficits today provide a vehicle for quantitative easing to add to spending in the economy (once the shutdowns relax) so QE today is likely to be far more potent than it was last decade.

How will central banks get their balance sheets down?

There is no magical right or wrong level for a central bank’s balance sheet – as can be seen in the chart above they vary as a share of GDP from country to country. So, it’s not necessarily the case that central banks will need to shrink them (beyond the shrinkage that may occur when their lending and low cost bank funding programs end) – they could just remain at a permanently higher level with central banks just rolling their bond holdings over as bonds mature meaning effectively that governments may never need to pay a portion of their debt back. And in the process the interest governments pay on such debt could come back to them as a “dividend” payment from the central bank!

Won’t it just cause hyperinflation?

The biggest risk in this whole strategy is that the expansion of the money supply results in a surge in inflation. Early last decade when QE became popular there was much talk of hyperinflation and the US becoming the next Zimbabwe, but it didn’t because while narrow measures of money (cash and bank reserves) surged, broader money supply measures like credit growth remained subdued and at the same time spare capacity in the economy remained high. The same will likely apply now in the short term – until economic activity recovers to more normal levels such that spare capacity is used up (with unemployment falling and factories operating at full capacity) and lending growth picks up substantially it’s hard to see inflation picking up. If anything, inflation looks likely to fall – just look at the plunge in oil and petrol prices, the slump in demand for discretionary retail products and all the talk of falling wages.

Once economic activity has recovered there is a bigger risk of inflation and central banks may have to reverse easy money. But that’s an issue for some time away. We still have to end the shutdowns, and all go back to work and spending first.

What does it all mean for investors?

There are several implications in all this for investors. First, because the coronavirus shutdown has created such a big hit to economic activity which will take a while to fully recover from, low interest rates and easy monetary policy will likely be with us for a long time to come and once the growth outlook improves this is a positive for growth assets like shares.

Second, the country that expands its balance sheet and by implication its money supply the fastest seems likely to see a decline in its currency. Based on our balance sheet calculations the Fed looks to be leading the charge here – which could be negative for the US dollar. This may ultimately support commodity prices and the $A once the shutdowns end.

Third, ultimately ultra-easy money, huge budget deficits and public debt and an ongoing retreat from globalisation will add to the risk of an eventual pick-up in inflation which would be negative for bonds – but that’s still several years away.


What signposts can we watch to be confident shares have bottomed?

Key points

  • While shares have rallied 15-20% from their March low and may have started a bottoming process, it’s still too early to say with confidence we have seen the low for this bear market.
  • Key signposts to watch for are: signs that the virus can soon be contained (here the evidence is starting to look better); monetary & fiscal stimulus to minimise collateral damage to economies (this gets a tick); signs that collateral damage is being kept to a minimum and growth momentum is bottoming (it’s too early for this one – albeit this may partly be a lagging indicator); and technical signs of a market bottom (some tick off).


After a roughly 35% plunge from their February high point to their lows around 23rd March, global and Australian shares have had a 15-20% rally. What’s more this rally has occurred despite increasingly bleak economic data ranging from plunges in business conditions surveys or PMIs (see the next chart) to a record 10 million surge over two weeks in claims for unemployment payments in the US. Volatility remains very high but at least we are seeing up and down volatility rather than all down as was the case into mid-March.

Source: Bloomberg, AMP Capital
Source: Bloomberg, AMP Capital

Markets usually lead and so may have already factored in the worst. And we have seen massive fiscal and monetary stimulus over the last few weeks to match the coronavirus threat to economies. So maybe we have already seen the low for shares? Or maybe not? There is still a lot of bad news ahead regarding the virus and the economic hit and we still don’t know how long the shutdown will be for and hence it’s hard to gauge the size and duration of the economic hit, when the recovery will come and what it will be like. What’s more past bear markets have often been interrupted by strong rallies, eg, October/November 2008 saw two 19% rallies in US shares followed by the ultimate low in March 2009. This could be the case here even if we have entered into a bottoming process.

So, what should investors look for in terms of when we can expect a bottom or be at least somewhat confident that the bottom has been reached? Not that anyone will ring a bell at the bottom or that investors will be bullish at the bottom.

The following are what we are looking for1:

  • confidence the coronavirus can soon be contained;
  • measures to minimise collateral damage to the economy;
  • confidence collateral damage is being kept to a minimum & signs that growth momentum is bottoming; &
  • technical signs of a market bottom.

Confidence the coronavirus will soon be contained

This is important as it will give guidance as to the duration of the shutdowns and their severity and hence the first round hit to the economy. There are several key things to watch:

  • The severity of suppression measures. After containment policies (quarantining & contact follow up) failed to control the virus (South Korea may be an exception), most countries have moved on to suppression, ie social distancing. This has been made necessary to allow hospital systems to cope without a blow out in deaths as in Italy. The question is are they being applied rigoursly. The evidence suggests that they are. Of 41 major countries nearly 80% now have severe restrictions in place, including Australia.
Source: UBS, AMP Capital
Source: UBS, AMP Capital
  • Is suppression working? The best thing to watch for is a turn down in the number of new cases. Italy is a good one to watch as it went into national lockdown around 9 March and if they get it under control it gives other countries hope. And there are some positive signs here with a downtrend in new cases evident in Italy, Spain, Germany, the EU generally and Australia. In the US it’s too early to tell, but it’s New York epicentre is showing a decline in new cases.
Source: Worldometer, Bloomberg, AMP Capital
Source: Worldometer, Bloomberg, AMP Capital
  • Based on China’s experience: 11-21 days after the lockdown new cases peak, and a month or so after that, the shutdown can start to be relaxed, which is why Chinese economic indicators started to improve in March. (While some question the reliability of China’s Covid19 case data, directionally it looks right and lines up with President Xi’s March 10 Wuhan visit & the restart of its economy.)
  • This would suggest that the lockdown in Italy and maybe even Australia may be able to be relaxed later this month or in May, if the number of new cases continues to trend down.
  • Of course, if the lockdown is eased too quickly this may risk a second wave of cases (as occurred in relation to the 1918 Spanish flu pandemic). To guard against this, quarantining of new cases and contact follow up will have to be aggressive and international travel bans would likely have to remain in place to prevent imported new cases (as China has found). There are two things that could short circuit this.
  • Antibody tests. It’s likely the actual number of coronavirus cases is being significantly underestimated because those with mild or no symptoms are not showing up for testing, but mass testing for antibodies to Covid19 would reveal what proportion of the population have already been infected and recovered. They will likely no longer be transmitters of the virus and should be able to return to work. Some estimates suggest that it’s already 40-60% of the Italian and UK populations. If so, there would already be a degree of “herd immunity” making it easier to safely relax the shutdowns. Such testing may still be several months away though.
  • Anti-virals or a vaccine. A vaccine may still be 12 months away but anti-virals are being rapidly tested.

The bottom line on this is that there are a lot of balls in the air but the decline in the number of new cases in several countries including Australia indicates that shutdowns are working which in turn holds out the hope that they can be relaxed in a month or so (providing containment measures are rigorous). International travel will likely be the last restriction to be lifted.

Policy measures to support the economy

The past month has seen a massive ramp up in monetary and fiscal measures globally and in Australia to support businesses, jobs and incomes through the shutdown period and to keep financial markets functioning properly. These are discussed here and here. Some (eg in Australia) are better than others (eg in the US) but with policy makers committed to doing whatever it takes they provide confidence that second round damage from the shutdowns will be kept to a minimum, which will enable economies to recover once the virus is under control. We rate this as positive, although more may still need to be done.

Collateral damage being kept to a minimum/growth indicators bottoming

There are a range of indicators to track on this front, including:

  • Credit spreads. Corporate & government bond yield gaps need to narrow. They are off their highs, but above normal.
  • Money market funding costs. As measured by the gap between 3 month borrowing rates and expected official rates these have narrowed in Australia but remain high in the US.
  • Default rates up only slightly. This is important in terms of assessing whether public support & debt/rent payment holidays are working. It’s too early to tell in most countries.
  • Daily activity indicators (eg, for energy production and traffic congestion) stabilising. This has been a good indicator in China, but it’s too early in developed countries.
  • Business conditions PMIs stabilising/improving. They’ve improved in China but are still falling elsewhere.

Technical signs of a market bottom

Market bottoms usually come with a bunch of signs.

  • Extreme oversold conditions. This got a tick in March.
  • Apocalyptic investor sentiment. It’s very negative but maybe not apocalyptic yet.
  • Signs of falling downwards momentum. This may only become apparent on a re-test of the March low.

Signpost table

The following provides a summary. The key ones are in blue.

Concluding comment

Many of these signposts tick off positively so we may have seen the low. But given the uncertainty around the length of the shutdown, risks of a second wave and very poor economic data to come it’s still too early to say that with confidence. Trying to time market bottoms is always very hard so a good approach for long term investors is to average in over several months.


Managing your super in a market downturn

We’re here to help you understand what happens in a share market downturn,

If you’ve seen a decrease to your super balance as a result of the coronavirus, it’s understandably cause for concern.

When your balance goes down (or up), it’s as a result of changes in the value of investments in your super fund — this could be a mix of cash, shares, fixed income, property, and more—and, of course, your balance will change when you or your employer adds money each month, or when you withdraw money in retirement or through insurance premiums, fees and taxes.

Severe as they can feel, events like this aren’t permanent. In fact, based on history, markets have bounced back from other global shocks including epidemics like SARS and Swine Flu.

In this article, we’ll address five key areas to consider when it comes to thinking about your super in a market downturn and when there’s increased volatility.

1. Maintain a long-term perspective

Super is like any type of investment, there will be times of highs and lows. For the majority of Australians, super may be our longest-term investment given we start investing in super when we get our first job and don’t access the money until retirement.

It’s also the nature of investment markets to change rapidly, particularly shares, property or fixed income investments. The share market for example, is a public market so when the share market rises or falls, changes in share prices may impact the value of your super if it’s invested in shares.

Markets recover with time

But from what we’ve seen in the past with events that disrupt investment markets, markets do eventually recover, it just takes time.

From the 1987 Stock Market Crash to the bursting of the Tech Bubble in 2000, each trigger is different and the time it takes to recover varies too — it can take months, weeks or even years. While disruptions to markets occur fairly regularly, they are impossible to accurately predict.

So, if you do decide to make changes to your investments during falling markets—like switching to a different type of portfolio—it’s important to also consider what impact that will have on your returns when markets recover.

The value of $10,000 invested for 70 years

The dollar value 70 years later is shown at the end of the graph (at 31 December 2019) with the average annual return in brackets.

2. Review your investment strategy

While these events may make you want to take action, it’s important to take a moment to consider your investment strategy including why you invested that way in the first place.

Understanding the investments that make up your strategy and how they are expected to perform over long periods of time, can help you think about your strategy objectively, instead of reactively. Particularly short-term market volatility which can influence your investment decisions.

If your strategy is intended to be a long-term plan, which may be the case for those with a long way to go before they retire, making decisions based on short-term market fluctuations may greatly affect whether you achieve your long-term goals.

If you’re approaching or are in retirement, it’s still important to stay focused on your investment strategy. Carefully consider all of your options, and their impact on your retirement goals, before making any significant changes. Speaking to a financial adviser may help with this.

3. Be aware of your risk tolerance

It’s always important to consider how you feel about risk and market volatility.

By understanding your risk tolerance, you’ll be better able to make decisions about the structure of your investment portfolio in a way that aligns to you personally. Risk tolerance depends on how you feel about taking risk and your ability to do so, such as whether you are financially able to bear the risk.

Asset classes like shares and property, have higher return potential and experience greater fluctuations in value, than cash or fixed income investments. How much exposure you choose to have in each of these asset classes, may change depending on your level of comfort, especially during periods of investment market instability.

4. Consider diversification

One of the most effective ways of reducing the impacts of investment fluctuations is to diversify. Multi-asset or diversified funds invest across multiple asset classes to assist in reducing volatility.

Diversification essentially follows the concept of not putting all your eggs in one basket by spreading your money across many asset classes, countries, industries, companies, and even investment managers.
When one area of your portfolio is weak and falling, another may be rising strongly. If you have money invested across many areas, changes in their values tend to balance each other out.

Diversification doesn’t mean you can avoid negative returns altogether, but it helps reduce the size and frequency of fluctuations in your portfolio. Particularly compared to if you’d only invested in shares, for instance.

5. Seek support from a professional

Super funds have lots of information available online to help you understand your savings.
Working with a financial adviser can help you design a plan to achieve your financial goals. They may also provide you with a better understanding about the risks and rewards of investing and how you can manage risk.

While the impact of market volatility can affect your super, it’s important to remember it won’t last forever. The investment strategy you adopt should take into account factors including—your financial goals and the savings required to get there, the number of years you have to invest, the return you can expect from your investments, and how comfortable you are with volatility.


Wealth Warning: Things to consider about the Government’s $10K early release of super measure

On March 22, the Federal Government has announced people facing significant financial hardship as a result of the Coronavirus may be able to access a portion of their super early. It’s a temporary measure to help people at this stressful time. The measure passed the House of Representatives on 23 March, and the legislation came into effect on the 25 March 2020. This measure is an extension of existing provisions which allow early access to super, for those financially impacted by Coronavirus, as per the eligibility requisites.

But how much are you able to access? Who exactly can access it? And perhaps most importantly, how accessing it now may impact your retirement savings? We look at some of the key points to consider.

How much super can individuals who are eligible access?

Super is meant for your retirement, and there are limited circumstances under which you can access any of your savings before retirement. This temporary measure will allow eligible individuals to access up to $10,000 of their super in the 2019/20 financial year and a further $10,000 in 2020/21 financial year.

Applications for the first $10,000 will be available from 20 April 2020 until the 30 June 2020, and the second $10,000 is available from 1 July 2020 until 24 September 2020.

People withdrawing their super as part of this measure won’t pay tax on any amount released and the money withdrawn will not affect Centrelink or Veterans’ Affairs payments.

Can early access to my super impact my retirement?

This early access is estimated to put up to $27 billion back into the pockets of Australians who have been financially impacted by the coronavirus.

“This is the people’s money and will benefit the sole trader or casual whose work hours or income has reduced by 20%+ since Jan 1,” posted Federal Treasurer Josh Frydenberg on Twitter after the announcement was made.

Accessing your super early will naturally have an impact on your retirement savings, so it’s recommended as a last resort.

We estimate the long-term impact to look like this:

Age Amount accessed early Reduction in balance at retirement age1
30 $20,000 $120,000
40 $20,000 $70,000
50 $20,000 $50,000

These are just examples, but they do show the impact of accessing funds early can have on your future balance.

According to the ASFA retirement standard index, a couple would need a super balance of around $640,000 for a comfortable retirement (assuming they’re aged between 65 and 85, have earned 6% pa on their super fund, and own their home outright)2. Super is meant to be a vehicle towards earning the kind of retirement you want—it should be drawn down on cautiously.

“Early access to retirement savings should be considered only when all other options have been exhausted,” says Helen Murdoch, MLC’s General Manager of Corporate Super.

But you should also consider all the effects of withdrawing from your retirement savings early, including withdrawing at the bottom of the market.

“Withdrawing funds from your super could have a significant impact on your retirement savings, further compounded by the recent investment market downturn,” says Helen Murdoch.

When people withdraw their super after investment markets have fallen, the part they withdraw won’t have the potential to grow in value when markets eventually return to their long-term growth trend. Recoveries can take weeks, months or even years and no-one knows how long before markets will recover from the economic shock of the coronavirus.

With interest rates at record low levels and with many governments developing support packages, it’s expected that companies will again start making profits, and markets will eventually rebound when the uncertainty passes. This was the trend after the previous SARS epidemic, and after the Global Financial Crisis.

“Younger people have time to recover and replenish their super but the older you are, the greater the risk that your retirement savings may fall short of your goals. In that case, you may need to consider working longer to recoup these losses,” explains Helen Murdoch.

If you do need to make a withdrawal however, it is also important to remember that when your circumstances improve, and your cash flow returns to a more manageable level, there are some great ways to boost your super savings back up. There may be a range of additional benefits available for you, including tax deductions and the Government co-contribution.

Other ways to find support

Over the past two weeks, the Government has announced two economic stimulus packages to reduce the economic impact of the Coronavirus—with a total of $320 billion being injected into the economy to help keep Australians in work and keep businesses running. Many Australians currently face, or may soon face, real financial hardship. But before accessing your super, it’s worth exploring other sources of emergency funds announced as part of the Government’s Coronavirus support packages for individuals and households.

It‘s important to remember that super is a long-term investment and you should carefully consider your individual circumstances before you make any decisions in response to the current situation. We strongly encourage you to speak with your financial adviser, or if you don’t have a financial adviser, please call us on 132 652 if you wish to discuss your options.

A reminder about who is eligible to access their super under this measure

To be eligible, you must satisfy any one of the following requirements:

  • You’re unemployed.
  • You’re eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment or other special payment.
  • After 1 January 2020:
    • you were made redundant
    • your working hours were reduced by 20% or more, or
    • as a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.

If eligible, you’ll be able to apply for early release of super from 20 April 2020 directly to the ATO through your myGov account at

The ATO will then assess your application and once they confirm this, they will send both you and your nominated super fund a determination to allow the funds to be paid to the bank account you nominated on your application.

You can also find further information on the application process on the ATO website, which can be accessed through following link.

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at 2 April 2020 and may be subject to change. The information in this article is general in nature and does not take into account your objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations.  Please consult a registered tax agent for this purpose. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.  Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.


What our investment managers are saying

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Given the speed and size of share market falls, it’s understandable for investors to feel like there is no ‘light at the end of the tunnel.’

Optimism is extremely scarce now. However, each of the market tremors of the past four decades — the 1987 crash, the 1997 Asian currency crisis, the 2000 bursting of the tech bubble, and the 2008/09 Global Financial Crisis — eventually ended, and share markets moved forward to recovery.

Perhaps some thoughts from Benjamin Graham, sometimes called ‘the father of value investing’ and investment legend Warren Buffett’s mentor, are as useful as any, at this moment:

“In the short run, the stock market is a voting machine – tallying up which companies are popular or unpopular. But in the long run, the market is like a weighing machine – assessing the substance of companies.”

Right now, the stock market ‘voting machine’ is thrashing many, many companies.

But, ‘substance,’ to use Graham’s description, matters, even in the current environment.

‘Substance’, as it relates to companies, includes attributes like good management teams, competitive products and services, a history of strong profitability and cash flows, favourable industry structures, and sturdy balance sheets.

Discipline being maintained, looking for buying opportunities

Good assets and good investment strategies can set investors up for long-term successes, despite market tumult, like the current moment.

Against that backdrop, insights we’ve been receiving from our externally appointed investment managers, including global equity managers, are reassuring.

They are all maintaining their discipline, looking for opportunities to buy quality assets that have been sold-off. Bargain hunting, in other words.

What follows is a summary of the views of some of our global equity managers.

Large valuation gaps between stocks

In certain industries and sectors, valuations are now at multi-decade lows. Furthermore, the spread of valuations between stocks (referred to by investment managers as ‘valuation dispersion’), measured by such metrics as price-to-earnings ratios (PE ratios), are now at extremes comparable to the late 1999s tech bubble era and Global Financial Crisis.

This means there are now massive gaps in the values of the ‘cheapest’ and most ‘expensive’ stocks across share markets. For active managers, wide valuation differences present the opportunity of owning stocks that they judge have been over-sold, but which they believe will rise in value when the market recovers.

Falling oil prices favour low-cost producers

While the health, social and economic stresses caused by COVID-19 are the single largest issue shaking investment markets, the recent global oil price collapse has also contributed to jangled nerves. The oil price fall stems from Russia’s refusal to join production cuts agreed by other major oil producers, led by Saudi Arabia.

This is good news for oil users, at least in the short run, but not good for oil producing countries, and oil companies like Exxon-Mobil, BP and Shell, for example, and the many companies servicing the oil industry.

The oil price fall is especially bad for ‘unconventional’ energy producers, such as a clutch of US ‘shale gas’ and ‘tight oil’ producers using ‘fracking’ technologies and techniques to extract fossil fuels. This group are high cost producers; many are forecast to go out of business as they will struggle to be financially viable with global oil prices now at around US$20 per barrel.

Our value equity managers1 with oil exposure have stress tested the balance sheets and cash flows of oil companies in their portfolios. Even on brutal assumptions, they believe the oil producers they own, will come through a period of very low oil prices.

Our managers’ preferred oil companies are low cost producers with good balance sheets, and arguably, will come out the other end even stronger as many higher cost producers will exit.

Banks with strengthened capital positions

Over the last decade, banks, especially US banks, have worked very hard to rehabilitate their balance sheets, tightened their lending standards to improve asset quality, and restrained dividend payouts to rebuild capital bases.

As a result, global banks have significantly improved their capital ratios — capital ratios are meant to provide banks with buffers that can see them through periods when they have higher numbers of non-performing loans on their books as business and household borrowers struggle to make repayments, or can’t make repayments at all.

The average common equity tier 1 ratios,2 in both US and Europe banks, are around 13% today: it was around 6-7% back in 2007.

So, banks are much better capitalised today, and appear focused on ‘doing the right thing’ by communities. This is different from the lead up to the Global Financial Crisis.

Back then, US and European banks were regarded as the cause of the problem as they were thought to have taken on too many risks. Those risks blew up, requiring massive government support to save some of the world’s biggest and best known financial organisations.

Now, however, the eight largest US banks — JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street3 — have jointly agreed to suspend share buybacks: share buybacks improve ‘earnings per share’ by reducing the number of shares in circulation and thus are good for shareholders. However, using banks’ capital for share buybacks does mean less capital for lending to businesses and households.

By suspending share buybacks, the banks will, instead, have more capital for lending to support economic activity.

Changes to supply chains

Companies that are part of popular culture ranging from Nike, Coca-Cola, McDonalds, Apple, and Samsung to Walt Disney and many more, have suffered share price falls. But on a longer-term view, people around the world will likely still want these companies’ products and services.

Our global equity managers are also taking the long-term view and holding fast to owning a share of companies they believe will continue to benefit from rising incomes and consumption in countries such as India and China.

On the other hand, global supply chains will probably be reconfigured. The borderless economy that has emerged over the past few decades has also meant the emergence of global supply chains for the manufacture of everything from shoes, to clothing, mobile phones, TVs and cars.

The current crisis has revealed the vulnerability of an over-reliance on China as the world’s go-to manufacturer of many everyday items. Companies will start diversifying their supply chains to reduce over-reliance on one source, going forward. That will be positive from a supply reliability perspective.

Undoubtedly, this period is difficult on many fronts, including the share market crash.

But the light will return, and financially strong companies with desirable products and services will thrive again. That will be good for societies and investors.


Wise moves: The new start-up economy

This article was originally published on

When Marty Moore left his role as CEO of multi-billion-dollar company CS Energy in 2018, he didn’t retire or find a string of boards to sit on.

He launched a start-up.

57-year-old Moore and his daughter Emma started Your CEO Mentor to teach leadership skills.

“Every day I wake up and I’m invigorated, energised and happy,” he says.

Most people associate start-ups with young hip tech types, but Moore is part of a growing band of over 55s who are launching start-ups.

One third of Australian start-ups founded by over-55s

A report, Secrets and Lies: Ageless and Booming, by WPP AUNZ agency,Lightspeed, says one third of Australian start-ups are now founded by over-55s.

The accumulated experience and wealth of senior entrepreneurs (‘seniorpreneurs’) is giving them an edge in the marketplace; but they’re also finding freedom, energy and meaning in the entrepreneurial world.

Learn more about kick starting your retirement planning or speak to a financial adviser.

Breaking the paradigm

Professor Alex Maritz, Professor of Entrepreneurship at La Trobe Business School, says older Australians are now the fastest growing cohort of entrepreneurs. He notes that one in ten over-55s in the workforce are involved in start-ups.

“That breaks the paradigm of entrepreneurialism being young tech start-ups,” he says.

Maritz says there are a number of factors driving seniorpreneur start-ups. Many are wanting to supplement or generate income. “But it’s not always economic and not always about money,” he says. “It’s also about social connectedness. They want to give back to the community in some way.”

Moore says his start-up has provided him with a vehicle to pursue his true purpose – to improve the quality of leadership globally – and to make a bigger impact on the world.

Free to launch

Over-55s are also finding it a great time in their lives to launch start-ups because they have fewer responsibilities, with children often having flown the coop.

After a long career delivering innovation projects in large corporate businesses and government, Maree Beare launched healthtech start-up Wanngi, an app that allows people to track their symptoms and manage their personal health records.

Beare says over-55 has been an ideal time to launch her start-up because her children have
left school, giving her more time and flexibility.

The experience edge

Maritz says older start-up entrepreneurs have an edge because they have often accumulated more
wealth to fund their business.

But perhaps the biggest advantage they have over their younger counterparts is experience. Maritz says senior entrepreneurs have been through the “university of life”. “They have a lot more skills and a lot more networks,” he says.

Riding ups and downs

Caroline Falkiner became burnt out after working many years in corporate jobs. She took time out with no plans.

After being frustrated trying to find her two children’s sports venues on weekends, she launched start-up, which lets users plan and get easy-to-follow directions to indoor and outdoor complexes and venues, including Sydney Olympic Park.

Falkiner says there many benefits of launching a start-up after a long career. Her three decades in corporate IT sales has given her intimate knowledge of how corporates work, which makes her more effective at selling into big companies.

A changing world

But seniorpreneurs do face challenges. Moore says older entrepreneurs also need to understand the
world of business has changed. “You’ve got to understand how it’s different,” he says. “Don’t be so arrogant as to think your experience in traditional business will help for launching a start-up.”

A start-up can be a tough grind and the pay-off may delayed. “Launching a start-up is really hard work without initial rewards,” Beare says. “But with a supportive family I have the freedom to ‘give it a go’.”

Understanding the risks

Keiran McIlwain, Head of MLC Technical Services Advice and Professionalism says pre-retirees and retirees themselves also need to consider the risks of start-ups, particularly if they are considering using super savings.

He says that it may be many years before they start to earn an income, if their start-up even gets off the ground. “Unlike being an employee of a company, income from a start-up may be inconsistent or erratic, and costs and ongoing expenses may be unpredictable too.”

McIlwain says to help meet ongoing expenses, retirees may have to draw more from their super than what they’d planned, which may impact how long their super lasts.

But despite these challenges, entrepreneurialism later in life delivers, not just the ability to generate income, but to contribute to the broader community.

“If you have an idea and you believe it’s solving a particular problem, then give it a go,” Beare says.


Growth assets: identify and capitalise on your best performers

Experts agree that retirees should go for growth if they want to boost their retirement lifestyle.

By Sam Powell

This article was originally published on

Frances White retired six years ago at the age of 63. In addition to a modest super account and share portfolio, the former qualified accountant owns three investment properties in Brisbane, the Sunshine Coast and Melbourne.

She is counting on capital growth from the properties to spice up her retirement. “Some financial advisers say when you retire you should sell assets and invest in things like conservative managed funds that generate cash,” she says. “But that’s not the only way to do it.”

Experts agree that retirees should go for growth if they want to boost their retirement lifestyle. “Having some growth assets in retirement is essential,” says John Owen, Portfolio Specialist at MLC Asset Management.

Learn more about kick starting your retirement planning or speak to a financial adviser.
Living longer

In the past, Australians could expect to have a relatively short retirement. Fifty years ago, ABS data showed that men lived to an average age of 67.6 and women to 74.2. But life expectancy has increased to 80.7 years for men and 84.9 years for women. “The money they [retirees] have got may have to last much longer than they think,” Owen says.

Returns from traditional retirement assets like cash and bonds have slumped as interest rates fell to record lows. Owen notes that in 2010, three-year term deposits were returning over 6% pa. Now they return just 1.25% pa.

Owen says if retirees are drawing down their savings, some research has shown they risk running out of money if they are too defensive.
Higher returns

That means investing in growth assets. These include international and domestic equities, listed and unlisted property, some high-growth infrastructure, and private equity that invests in unlisted companies.

Andrew Boal, CEO of financial services consulting firm Rice Warner, says growth assets should give you better returns over longer periods.

In the 10 years to December 31, 2019, growth assets have outperformed other asset classes. Australian shares returned 7.9% per annum, Australian property securities 11.6%, global shares (hedged) 11.3%. But Australian bonds returned 5.7% and cash just 2.9%.
Higher returns for a better lifestyle

Frances White says she needs those higher returns to have a chance of a better retirement lifestyle. Because she was a single mother she started investing later and didn’t accumulate a lot of super. To catch up, she turned to investment properties, accumulating four in the decade before her retirement.

White sold one of the properties to help fund her retirement, but she has continued to hold three investment properties primarily for growth through capital gains.

“My assets should keep going up in price. I plan to sell another in five years and then put that money into things like shares that give me regular income.”
Managing volatility

While growth assets return more over longer periods, they can lose a significant amount of their value in the short term.

Owen notes that in the December quarter of 2018, Australian shares fell 8.2%, US shares 13.7% and Japanese shares more than 16%. Australian residential property prices in Sydney and Melbourne have also suffered steep losses in recent years.

“But that [volatility] doesn’t mean you avoid them,” Owen says. “There’s always opportunity to manage risk.”
Best protection – diversification

The best protection is diversification. “Buy growth assets alongside other things that have a less volatile pattern of return,” he says.

Owen says that investors in growth assets should invest with longer time frames in mind. “Often they need to give those assets time to deliver their superior return potential.”

Boal says the risks of growth investments can be overstated when you are investing for the long term. Over a 20-year period, a poor outcome for growth assets is similar to that delivered by conservative
investments. “By investing more conservatively, over the long term you’re mainly limiting the chance of getting upside returns without really protecting the downside that much.”
Going for growth

Frances White decided to go for growth. She says being totally conservative and investing for income is fine for retirees with a big enough super portfolio to draw a pension. “But most of my generation don’t have big amounts of super.”

Boal says how you invest your money is really important. “Retirees these days are expected to live a longer life and need to have some exposure to growth assets to make a material difference to their spending and standard of living in retirement.”