Be ready for a bumpy ride with occasional losses

QI am 57 years old and have $1.16 million in my super fund (currently UniSuper, conservative balanced, returning about 5%). After a long and well-paid career in IT, I am transitioning to be a disability care worker for my final few work years. So, I won’t be contributing much from my salary for the next three years.

I plan to start drawing on my super at 60 but may continue part-time work for a few years. I will also have about $100,000 in shares when I retire, own my own home and have no debts. I’m tempted to move back to the UniSuper balanced fund to get better returns. Is this too risky at my age?

Hell no, Fiona. My view is that you are 57 years young. Life expectancy tables say that the average life expectancy for a 57-year-old woman is some 28 years. Personally, I think a balanced fund with high exposure to shares, property and infrastructure should be held for a decade or more to allow returns to be “smoothed”; in other words, so that the higher returns some years offsets the bad years, which history says will happen.

Those are the facts. But now you need to put yourself into the picture. This is a decision about risk and return. History and investment markets says that if, over long periods of time, you hold good-quality but riskier assets you should be rewarded by that decision. But how do you feel about that? Sharemarkets could easily, and probably will, fall by over 50% during your lifetime. This happened in the GFC of 2009 and for a brief period due to Covid in March 2020. Markets recovered over a few years in 2009 and over a few months in 2020 and are at record highs.

So, if you choose to move to a balanced option, you will see some bad years where your super may dip quite a bit. Do remember, a balanced fund is not only shares, so the fall in value will be softened by the other assets in the fund. But your balanced fund is likely to fall in some years and possibly stay down for quite a few years. The other point is markets are hot right now. This won’t go on forever; we’ll get an inevitable correction. However, historically, share values have always recovered over time.

The additional risk should deliver higher returns in the longer term, but the ride is bumpier. One thought is to do a split between balanced and conservative, but whatever you decide needs to sit comfortably with you. This can only be your call.