For years, many Australians have been guided towards a simple idea when it comes to investing for retirement. As you get older, you should take less risk. That usually means moving out of shares and into more conservative investments like bonds and cash.
It sounds sensible. But it is worth asking whether this approach still fits the way we live today.
Retirement is not what it used to be.
For many Australians today, retirement can last 20 to 25 years, and for some, even longer depending on when they stop working. That is a very different challenge compared to previous generations.
Your super is no longer just there to support a short phase of life. It needs to keep working for you over decades, which means growth still plays an important role.
Many super funds automatically shift your investments into more conservative options as you move through your 60s.
You may not have asked for this. It often happens in the background.
We recently saw a case where someone in their early 60s had already been moved mostly into conservative investments, with plans for the portfolio to become even more cautious over time.
The question is, does that suit someone who is active, planning to travel, and expecting a long retirement?
At first glance, the difference between investment options can seem minor.
A growth option might earn only a little more each year than a balanced one. But over time, that gap adds up. Over a decade, it can mean a noticeably larger balance.
The difference becomes even more pronounced when comparing balanced options to more conservative ones. Over time, conservative settings can leave you significantly behind.
A common reason for switching to conservative investments is to avoid market falls.
It is true that portfolios with more shares tend to drop further when markets dip. But that is only half the story.
Recovery matters just as much.
Looking at recent events such as the market downturn in early 2020, portfolios with higher exposure to growth assets fell more sharply but recovered in a similar timeframe to more conservative options.
In some cases, the difference in recovery time was only a matter of weeks.
For long-term investors, that may not be a major concern.
Things become more complex once you start drawing on your super.
If markets fall early in retirement and you are withdrawing money at the same time, it can have a lasting impact on your balance. This is sometimes called sequencing risk.
That said, even when regular withdrawals are taken into account, more growth-oriented portfolios have often held up better over the long term.
More conservative portfolios, while steadier, can slowly lose ground over time.
Many people focus on the risk of market ups and downs.
But for someone facing a long retirement, there is another risk that can be just as serious. Running out of money.
Without enough exposure to growth assets, your super may not keep pace with inflation or support your lifestyle over the years ahead.
There is no one-size-fits-all answer. The right mix depends on your goals, your comfort with market movements, and your overall financial position.
But there are a few simple steps worth taking:
For many Australians, staying invested in growth assets for longer may feel uncomfortable. Yet in some cases, it may be the more sensible and cautious approach over the long term.
Your super is one of your biggest financial assets. It deserves more than a set-and-forget approach.
If you have not reviewed your super in a while, now may be a good time to take a closer look. Please feel free to reach out to us if you have any questions.
