I want to switch super funds. Should I wait for markets to recover?

I’m unhappy with my current super fund and wish to switch to another provider. Should I wait for markets to recover before switching, or just get on with it now?

Assuming the investment mix will be similar between your existing fund and the new fund, for example Balanced option to Balanced option, then there’s no reason to delay due to market volatility. You will be selling and buying in the same market.

Transferring between one super fund to the other should have minimal impact on your balance and returns.Credit: Simon Letch

There will potentially be a few days as the money shifts from one fund to another where you are out of the market, and so it is possible you could get unlucky and miss a day when the market bounces.

But it’s also possible that it could work in your favour should markets decline. This situation exists whenever you transfer from one fund to another.

When transferring super, ensure you are clear on the outcome for your insurance. How does the new fund’s offering compare to what you currently have, both regarding level of coverage and cost?

I have access to all my super, but still have a $170,000 home loan. In the past, home loan interest was around 5 per cent, and super average return about 10 per cent, so it made sense to leave my money in super. With what’s happening in the world and most likely getting worse, should I just pay off the home loan now rather than leave all my money in super?

Being debt free in retirement is a solid foundation that I would always advocate for. By clearing your mortgage you get a guaranteed outcome, being the interest cost saved on the loan. By remaining in super, the investment outcome is uncertain.

As you observe, historically investment portfolios within superannuation funds have delivered a higher return than the mortgage rate, but the price for that higher return is an acceptance of the uncertainty.

Your assertion that things are likely to get worse from here, is worthy of challenge, though.

There’s a concept in behavioral economics known as recency bias. It refers to our tendency as humans to disproportionately weight events that have happened recently, rather than taking a more balanced, long-term view.

Markets are volatile right now, and our natural inclination towards recency bias causes us to extrapolate and conclude that ugly times will persist. But this is a faulty conclusion.

The long-term average return on your super fund includes periods where markets decline, along with the far more common scenario where markets rise. Periods like we’re seeing right now are a normal part of investing.

This is not to talk you out of clearing your mortgage, but rather just to ensure that your decision to do so is made with the appropriate rationale.

I received 1000 shares in NRMA/IAG as a bequest in 2000. I kept the shares and utilised the dividend reinvestment plan, ending up with 2500 shares that I sold earlier this year. How will capital gains be calculated on this sale? I am a retired and have no taxable income.

When you inherit shares, you inherit their cost base, in other words the value that they were originally acquired for. The shares acquired via dividend reinvestment will have an acquisition price that was applicable at the time of issue.

In combination, this will determine your capital gain and any subsequent tax. Keep in mind that you have a tax-free threshold of $18,200. Perhaps the sale proceeds here are below that threshold. Check with your accountant to be sure.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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