Provided by Mercer: 30/6/09
Changes to the concessional superannuation contribution limits from July 1 mean people should review their super investment strategy.
This is made all the more important in a low market when super units can be undervalued and the advantages of ‘dollar cost averaging’ are particularly profound – according to Mercer’s Financial Advice Leader, Scott Walters.
Significant reductions in the level of superannuation contributions subject to concessional tax treatment, announced in the recent federal budget and effective as of July 1, mean it is suddenly much less attractive to leave it to the end of your career to top-up your super, and people of all ages should therefore be reviewing their super investment strategy before it’s too late.
“Super units are often undervalued when markets are low, and therefore essentially on sale, which means you can get more units for your money. So contributing more now will put people in a much stronger position when the market recovers,” said Mr Walters.
“By doing this, people take advantage of dollar cost averaging - continuing to make regular contributions in both high and low markets. When unit prices are low, their contribution buys more units, and when unit prices are high, their contribution buys fewer units, but over the long run it averages out.
“Like most things in life, your super investment strategy should change with your life-stage and changes to super in the recent budget mean it is important for people to establish a strategy that reflects their risk profile and consider what extra contributions they can afford.
“When people see their super balance take a dive, they naturally consider switching options or stopping their voluntary contributions. In reality, a low market can be one of the least opportune times to do either,” he said.
“The end of the financial year is a time when superannuation is top of mind for many, and this year it is likely to be even more so. But people shouldn’t let balance statements be the only thing that rules their superannuation decisions. When the market rises again, so too will the value of each unit and therefore the value of their portfolio. So continuing regular super contributions in the down times can pay off in the long term,” said Mr Walters.
“It’s important to remember that over the last 18 months, the value of investments has suffered across the board, so given the tax effectiveness of super, it’s still the most attractive way to save for retirement.
“The mantra, it’s time in the market, not timing, is proven to reap financial rewards.
“Missing the full benefits of just one of the best days in the market because you haven’t got the best super investment strategy for your life stage, could mean the difference of tens of thousands of dollars in retirement. The longer people are in the market, the better chance they have of making the most of those peak days.
“Up until now, competing priorities in younger life often meant people waited much later to focus on their super. With overall reductions to the contribution caps from July 1, this is less of an attractive option. Now more than ever, the tortoise will beat the hare when it comes to superannuation,” he said.
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
