Q. Is it time to start moving to Cash with allocated pension funds rather than a Balanced option ?

A. Markets run in cycles and if you try to time your entry and exit of markets you run the risk of getting it wrong which may lead to expensive mistakes.  Whilst it can be tempting to jump out of markets in volatile times, the hardest part is to determine when to get back in.  More damage is done by moving in and out of markets rather than staying the course. Past experience has shown markets may move quickly and you could miss the rise by waiting.

Allocated Pensions are meant to be long term investments, their purpose is to provide you with retirement income.  It is generally accepted that growth assets will outperform defensive assets such as cash and fixed interest in the long term.  As such it is important that your overall portfolio has growth assets to protect against the long term impact of inflation.

A Balanced portfolio typically will invest 60 to 70% of the portfolio in growth assets.  If you are uncomfortable with this level, a Balanced portfolio may not be appropriate. Identify what you appetite for risk is and ensure you invest within the acceptable investment ranges for that risk profile.

It is important that you diversify your portfolio amongst a range of investments.  Don’t have all your eggs in the one basket!  Diversify into a range of asset classes such as Shares, Property, Fixed Interest and infrastructure.  These asset classes should be diversified by type, and a mix of Australian and International.

Whilst pass performance is no guarantee of future success, use well rated quality fund managers with a proven track record of delivering returns with an appropriate level of risk and volatility.

We would generally recommend that clients drawing from an Allocated Pension retain 2 to 3 years’ worth of their income drawings in a cash investment within the Allocated Pension to ensure that if markets do fall, they are not required to draw their income from their growth assets but rather pay income form the Cash account.

“Filter the noise”.  Evidence suggests that reacting to the daily information flow  and “noise” of the markets can lead to adverse outcomes and unnecessary stress.  There is an enormous volume of information in reference to markets and investments that can distract investors from staying the course with an appropriate strategy.  “Stay true to your beliefs and doubt your doubts”.  (Dieter F. Uchtodorf)

If your strategy is appropriate to your needs, you have a clear understanding of your appetite for risk, your invest time frame and your income needs, then you should only make changes to your asset allocation if your circumstances change or there has been a substantive change with the investments within your portfolio.

If you are unsure, then get advice.  As you would go to a Doctor for a heath check, go to a qualified Financial Planner to check your finances.  At the least you may find everything is ok.  If not better to find out now rather than later!

Follow Andrew on Twitter @AndrewHeavenFP. This article was originally published in The Australian