• Question 1: With predictions that superannuation is most likely to produce negative returns this year, would it not be prudent to convert most of the fund to cash within the fund to ride out the downturn in share market and then convert back to, say, a balanced fund in the future? 

Many people attempt this strategy, it’s called ‘market timing’. It normally ends badly.

You must get two timing decisions correct. When to move to cash, then when to re-invest. The chances of getting both decisions correct are remote.

Nearly everyone is familiar with Warren Buffet, the most famous and probably successful investor currently. He often states he does not try to time the market. Below are just a couple of his quotes:

“I don’t think we’ve (referring to his business partner Charlie Munger) ever made a decision where either one of us has either said or been thinking: ‘We should buy or sell based on what the market is going to do.

“Or, for that matter, what the economy is going to do.

“We’ve long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

Markets are forward looking so will start rebounding well before the economy has picked up. If you miss the start of the upswing, you can do enormous damage to your future wealth.

Fidelity Australia have a nice little interactive chart that shows you what happens if you miss the best few days of the market.

For example, if you invested $10,000 in the ASX200 20 years ago it would be worth around $52,200. But if you missed the best 10 days it would only be worth $30,900. That is a huge difference.

The best approach for nearly everyone is to invest according to their risk profile. And then just leave it alone, stay invested over a long period and let compounding do its magic.

Your risk profile is created based on factors such as your age, financial situation, investment goals, and personal tolerance for market fluctuations.

Risk profiles can range from low risk/low return to other risk profiles willing to take on higher risk in search of potentially higher returns.

Having a clear understanding of your risk profile can help you make informed investment decisions and avoid making impulsive or ill-advised decisions based on short-term market conditions.

I suggest speaking with your super fund, or financial adviser, to assist you in working out your risk profile and then selecting a corresponding investment option to stick with long term.

• Question 2: I have about $45,000 in shares, of which about $35,000 is capital gains. I am retired with no income. If I sell them, am I liable for capital gains tax on the full amount? 

You have no income? Then how do you live?

Capital gains must be included in your income tax return. If you have held the shares over 12 months then only 50 per cent of the gain is included, that is $17,500.

This amount is below the current tax-free threshold of $18,200, so no tax would be payable.

However, if you are in receipt of any income support, such as the age pension or Jobseeker, both of which are taxable, then this would result in a small amount of income tax to be paid.

• Question 3: I am 65 – what is the maximum amount I can cash out of super without affecting a carer’s pension?

Your super is currently not counted as an asset as you are under the age for the age pension. The carer payment has the same asset test as the age pension so it will depend on whether you are single or a member of a couple, and whether you are a home owner.

As a guide you can have $280,000 in assets if you are a single home owner and still receive the maximum payments. For a non-home owner this figure is $504,400.

When you say ‘cash out’ and then do what? Leave it in your bank account? Unless you were going to spend the funds on something specific straight away you might be better to leave funds in super, then look at options once you obtain the age pension.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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