I'm worried about my retirement investments
STEP 2: Review your financial plan
Watching the value of your investments fall can make you feel like you're spiralling out of control. Getting yourself into a state of panic and reacting too quickly can sometimes make the problem worse. Markets move up and down in cycles. Over time, most investments will recover from the current downturn.
Before you start selling or switching investment, it’s worth revisiting the golden rules of investing. Start with your objectives — your reasons for making investment decisions in the first place.
Get back to basic
A good financial plan will be designed to suit your needs over the long term. We know in advance that markets will go up and down — but nobody knows when or by how much. Review the reasons why you are investing:
- How much of your money will you need for spending in the next couple of years?
- How much of your money is not needed until years ahead, and can be invested with the aim of growing in value and protecting against inflation?
- Do you need a regular income to live off?
ASIC’s key tips for investing are a good starting point for reviewing your objectives in more detail.
Revisit your attitude to risk
A severe market downturn will test everybody’s tolerance to risk. While no-one likes losing money, some people will feel they can ride out the downturn. Some even view it as an opportunity to buy assets cheaply. Other people will find that their investments went down by more than they could bear — financially or emotionally.
Now is a good time to review your risk tolerance and check that your investments suit it:
It’s human nature to want to earn 50% profit per year but is that realistic? As a guide, if an investment is offering an annual return of 2% more than similar investments are offering, it generally means increased risk. Learn how to recognise the sort of high returns that are simply too good to be true.
Talk to your adviser
If your retirement investments were recommended by a financial planner, consult that planner about what you should be doing in the current investment climate. It is always worth putting your questions in writing and asking for a written response in the form of a statement of advice.
A good statement of advice will set out the planner’s recommended strategies and demonstrate how each strategy will meet your personal needs and objectives. Only ever act on advice you understand.
Whatever advice you receive, the investment decisions you make need to meet your long term goals and suit your risk profile, not what is performing best this year.
In a market decline, switching from growth investments to more conservative investments can have bad long term consequences and may mean that you lock in investment losses (e.g. by selling assets when the price is low and being unable to make up lost ground when markets recover.)
See our information on how to complain if you are not happy with the advice you have received.
What if the numbers just don’t add up?
The key issue is whether you have enough money to live on, based on the current value of your assets and what income they are generating. You may need to use a budget planner to review your current income and expenditure to ensure you are still able to live within your means.
Once you’ve reviewed your financial needs and goals, it’s time to assess whether your current assets and investments are still able to deliver the amount of income and capital growth you need.
Key contacts
FIDO Website: Printed 07/31/2010
on 1300 780 80.
