Noel Whittaker on riding out the storm

Personal finance expert answers key financial questions from panicked Australians.

Noel Whittaker on riding out the storm

The COVID-19 crisis threw up myriad challenges for retirees – and for anyone concerned about the dent taken by their super. YourLifeChoices received numerous questions relating to superannuation, including these, which were asked repeatedly. We put them to personal finance expert Noel Whittaker.

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Q. I moved part of my super and pension funds into cash just as COVID hit and sent share markets into a spiral. Did I do the right thing? Maybe don’t tell me if I didn’t! When should I move the money back and should it go back into the regular balanced option?

A. I have long recommended that trying to time the market is a mugs game – for example, in the last week of May, bank shares jumped 8 per cent in one day. Is this a signal the market has turned, or just a dead cat bounce. Nobody knows. The best way to handle your investments, is to agree on a set asset allocation with your adviser, and stick with that in the good times and the bad. And, of course, always keep at least three to four years’ planned expenses in the cash area so you are never forced to dump good shares when the market is having a downturn.

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Q. I have $250,000 in a bank account that is only earning me 1.6 per cent. This seems like lunacy but you say to keep several years of living expenses on hand. I fear I am plundering these funds and they are not being replenished by interest earnings. Should they be placed elsewhere?

A. I get questions like this every day – and there is no simple answer. For higher returns you need to invest in growth assets such as property and shares, but obviously property is no good for this amount of money, which leaves shares. But you should never invest in shares unless you have at least a seven to 10-year time frame in mind. This is to give you time to ride out the inevitable falls in the market. You could take advice about putting some of your money into an index fund, which is currently paying around 5 per cent per annum, 80 per cent franked. An index fund cannot go broke by its nature, but it will rise and fall with the market. If you think you can handle this, you could start with say $25,000 and then be prepared to leave it be.

Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au

Noel Whittaker is the author of Making Money Made Simple and several other books on personal finance. You can learn more at noelwhittaker.com.au

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    Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your





    COMMENTS

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    johnp
    1st Jul 2020
    2:34pm
    Fairly rudimentary answers by Noel.
    For example the question re. "moved part of my super and pension funds into cash just as COVID hit""
    if the questioner did this early as COVID hit then the answer should have been :
    Yes; you did the right thing assuming you did this early enough when COVID hit
    Plus there are higher interest rates available albeit only a bit higher
    Farside
    1st Jul 2020
    6:17pm
    and several years of cash expenditure amounts to $250,000 ... the example is a long way from having a financial problem, they have a spending problem.
    skinner
    1st Jul 2020
    8:03pm
    With $250,000 in a bank account, I'd use %200,000 & buy bank shares in the big 4, or the big 6 if you include Macquarie Bank & Suncorp! The former is the more exi but gives the better % divs, while the opposite if the case for the latter!
    skinner
    1st Jul 2020
    8:03pm
    With $250,000 in a bank account, I'd use %200,000 & buy bank shares in the big 4, or the big 6 if you include Macquarie Bank & Suncorp! The former is the more exi but gives the better % divs, while the opposite if the case for the latter!


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