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Investing in uncertain times

April 2009

The impacts of the Global Financial Crisis (GFC) have been hard felt by many. With rising unemployment and investors experiencing declining investment returns, many people feel the future is filled with uncertainty.

One outcome of the GFC is that many investors have become more engaged with their super. For individuals who previously gave little thought to how their retirement savings were invested, the events of the last 18 months could have given them a strong jolt. Many are now wondering whether their investment strategies are appropriate for their needs.

Investment markets are cyclical in nature. For every trough, a rise and eventual peak must take place. When this will happen is hard to know. However, a rebound will eventually occur.

As you can see by the example below, historically markets have eventually ‘bounced back’. The 1987 crash is the largest one-day percentage decline in sharemarket history! However, over the long-term the trend remains upward.

Source: Thomson Financial

However, in spite of all this, we can’t ignore the severity of the current situation. Since its peak on 1 November 2007, the Australian sharemarket (ASX 300 Price Index) has fallen by over 50 per cent to the end of February 2009.

Members invested in growth assets, predominately shares and property, have arguably been the hardest hit. Although growth assets typically deliver higher returns, they’re also more volatile and likely to have periods where they produce negative returns.

As a result, it’s a natural response at times like this to question whether to move into a more conservative investment strategy, with more exposure to defensive assets such as cash and bonds.

However, changing your investment strategy should be approached with caution and seeking licensed financial advice prior to making any financial decisions is strongly recommended.

Superannuation investments are long-term. The average member of a corporate super fund won’t retire for another 20 years. While it’s tempting to become more defensive or even to move to cash to avoid further losses, doing so may have not have the effect you desire.

Some people may believe further losses could be avoided by changing investments now and moving back to growth assets when conditions improve. Such a strategy is called market timing. The problem with this approach is that it’s extremely difficult – if not impossible – to time the market consistently. Even professional investment managers struggle to add value through market timing.

A general rule of thumb for reviewing your investment strategy is: if your objectives, financial situation and needs haven’t changed, you may not need to change your investment strategy. However, when dealing with such market conditions, it may be worthwhile seeking the advice of a licensed financial adviser. One of the key roles of an adviser is to ascertain whether personal goals and expectations are aligned with investment strategies.

As a member of your corporate super fund you have access to Momentum Financial Advice. This service involves financial advisers providing general advice over the phone, at no cost to you. You can also attend an initial face-to-face consultation with an adviser, who will assess your personal situation - again at no cost to you.*

If you would like further information on Momentum Financial Advice call a Plum Member Services Consultant on 1300 55 7586 who can put you in touch with an adviser directly.

*Important note The Momentum Financial Advice service is delivered by GWM Adviser Services Limited (GWMAS) ABN 96 002 071 749 AFSL 230692. GWMAS is part of the National Australia Group of companies. Telephone-based financial advisers are licensed through GWMAS. Financial advisers on the Momentum Financial Advice panel are licensed through GWMAS or other licensees. The financial advisers and their associated licensees may receive a commission when applications are lodged for certain financial products. Further information on commissions can be obtained from the financial adviser's Financial Services Guide.

Neither Plum nor the Trustee endorses or guarantees any advice provided by GWMAS or any financial adviser referred through the Momentum Financial Advice services. The Trustee, through its administrator, Plum, merely facilitates members’ access to these services and does not accept any liability for the services provided.

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