The largest source of wealth for most Australians is their family home or their superannuation. But many people will need to sell the family home at retirement so they have enough income to sustain their lifestyle needs. Why is this the case?
- They may need to pay out a mortgage (for many retirees, this is not a comfortable scenario in the current residential property market);
- They didn’t contribute sufficiently to their Super early enough for compound interest to do its magic; or
- They didn’t pay enough attention to the Asset Allocation of their Super account.
Almost 90% of the long term returns of your Super investments is determined by having the right Asset Allocation – that is, the weightings you allocate your money to across the various available asset classes.i The great thing about Superannuation is that you have a wide universe of assets that you can access; from Fixed Interest, to Listed Property, and all the way through to Shares.
But how much should we invest in each asset?
If you take a look at the chart above, you can see it paints a very clear story. The history of returns is no guide for the future, and the best returning asset class is different nearly every year. Sometimes, the best performer becomes the worst and vice versa.
Nobody has a crystal ball, not even financial advisers. But, with a professional adviser’s expertise and ongoing support, it is not necessary to predict the future to achieve your goals. Our role as financial advisers is to help you navigate your financial future. For retirement planning, this means conducting necessary scenario analysis and providing you with strategic advice to:
- Work out the Asset Allocation that matches your risk profile, lifestyle goals and objectives, and meet with you regularly to keep things on track.
- Calculate how much you need to be contributing to Super each week to ensure you are well prepared financially and lifestyle-wise for a comfortable retirement.
- Determine how you can pay off your mortgage in line with your budget and lifestyle, and possibly avoid being forced to sell at retirement age.
The key thing to remember when it comes to Asset Allocation is to be patient and stick to your plan, because tampering with your investments will do you more harm than good. In fact, studies have shown that the best performing accounts were for investors who were dead, closely followed by investors who had forgotten they had accounts!ii The thing both these groups had in common was that they were not actively trying to time the market.
With a good adviser, successful investing doesn’t need to be complicated. When you take a long-term perspective, and have clear investment goals, it’s easier to sit back and watch market cycles unfold.
This information may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation & needs before acting on it. Where the information relates to a particular financial product, you should obtain & consider the relevant product disclosure statement before making any decision to purchase that financial product. Any advice in this article is general in nature and is provided by Gallagher Benefit Services Pty Ltd (ABN 49 611 343 803, AFSL No. 488001) (“Gallagher Benefit Services”).