Best market advice: ‘Be patient’ as volatility shocks again

A strong lift on the ASX on Tuesday followed a record breaking drop Monday.

As the local share market offered some relief with a 5.8 per cent bounce back – top financial advisers are moving to give practical advice to clients stunned by the volatility across investment markets.

Tim Mackay of Quantum Financial said: “Markets just do not know how to price anything about coronavirus and how it evolves ... so they fluctuate wildly. Over time big moves are a part of investing in markets - we tell clients do your best not to let it dictate your important investment decisions.”

After a whipsaw session which ended with banks and miners making gains of more 10 per cent while property trusts fell further, Stephen Miller at the GSFM group suggested: “If you already have a conservative portfolio, I wouldn’t be changing it any time soon. As for going back into the market, well there is the risk of trying to catch a falling knife…be patient.”

With Tuesday’s wild session representing the best day in about 13 years, advisers continue to suggest investors at all levels refrain from panicking, especially in relation to superannuation.

In practical terms, three near-term strategies which might be useful for superannuation investors have emerged:

Managing pension drawdowns

Retired Australians with superannuation must “drawdown” a set percentage of assets each year depending on their age and portfolio. The drawdown amount is a figure for a full financial year.

Advisers are suggesting some investors might hold off drawing down until later in the year when markets might have recovered, or the federal government might introduce softer drawdown rules as it did in the GFC.

Lyn Formica of Heffron Consulting said since pension payments must be made in cash (rather than by transferring assets out of the fund to the member), in some cases meeting minimum drawdown requirements before 30 June 2020 might mean having to sell investments and realise losses in a depressed market.

However, Formica warns: “Of course, if no changes are made, the full minimum amount will still need to be paid by 30 June 2020.”

Possible new contributions below the $1.6m cap

Advisers suggest that lower markets might drag the value of portfolios lower to the point that total assets aimed at funding a pension could drop below the “cap” allowing new contributions to make up the difference.

The strategy is only relevant to investors in accumulation (pre-retirement) stage who have large share portfolios that have been cut dramatically in the market downturn.

In specie contributions

Investors who have held shares outside super for a long time now have the chance to shift them into super funds at lower prices. Advisers say the typical issue is where investors received shares through a privatisation in the past - such as Commonwealth Bank or Telstra - and have always wanted to transfer them into their super.

As shares must be transferred at current market valuations it might be an opportunity.

“The issue to watch is capital gains tax, which will still be applied,” according to Mackay at Quantum.

Top advisers have been escalating the distribution of briefing notes as clients at all levels reel from the speed of the market downturn.

The most common message from leading advisers is that investment market volatility is here to stay.

A strong lift on the ASX on Tuesday followed a record breaking drop Monday – the lift was substantially prompted by a rebound in US futures.