SMSF Trustees: Tame Market Volatility with This Panic-Proof Solution

If you are an SMSF trustee, chances are you have selected this investment type to increase control, lower costs, and better fit your portfolio to your own retirement objectives. More accountability follows from more control, particularly in markets with erratic flow.

Volatility isn’t only a one-off occurrence, recent years have proved. Global pandemics, geopolitical concerns, inflation shocks, or unexpected interest rate increases—all of which can set off markets to change rapidly and severely. For conservative investors handling their own retirement funds, such swings might be disturbing.

What are your options when the market seems too erratic for comfort? These useful, practical suggestions will help you keep on target and preserve the integrity of your SMSF portfolio.

Your SMSF should include an Investment Strategy document that outlines your goals, risk tolerance, asset allocation, and liquidity requirements. Reviewing this document is a good opportunity to make sure your present investing choices match your long-term objectives, without changing them.

Think about:

• Does my investing horizon now differ?
• Has my risk tolerance or income need changed?
• Does my portfolio now reflect the diversification and asset allocation I first planned?

Should the response to any of these be “no,” it could be time to re-balance or adjust allocations in line with your documented plan.

Everyone from professional investors down to novices finds it difficult as well to properly time the market. Trying to hop in and out depending on fleeting changes in stock prices can cause missed possibilities and more stress.

Studies repeatedly show that long-term gains can be significantly impacted by missing only a few of the top-performing days on the market. Rather, concentrate on keeping invested in quality assets with future potential for recovery and expansion over time.

Recall: Markets exhibit volatility that increases and decreases depending on economic circumstances; this is an inherent characteristic not an anomaly. Usually, keeping the course is more successful than responding emotionally to market declines.

Repeated experience gained over time (along with financial models) has shown our best protection against volatility is diversification. An SMSF portfolio with good diversification distributes risk among several:

• Fixed interest, cash, shares, property, asset classes
• Industries (consumer basics, technology, banking, healthcare)
• Geographies: Australia, overseas developed and rising markets

Should your portfolio be highly concentrated, say in Australian bank equities or local property trusts, you can be more sensitive to sector-specific downturns. Examine your holdings and think about expanding to lower single-asset or single-sector risk.

Volatile markets can compromise your capacity to create consistent income as well as your wealth. This is particularly crucial in case your SMSF must create minimum drawdowns or pays a pension.

Make sure your fund is sufficiently liquid to cover immediate needs without having to sell off growing assets at a loss. Think on preserving one to two years’ worth of income needs in defensive investments or cash.

This cushion lets you weather declines without having to sell aggressively.

Volatility offers opportunities for patient investors including these strategies:

Rebalance: movements in the market might upset your asset distribution. Seize the chance to purchase cheap and sell high.
Dollar Cost Averaging: If you are reinvesting dividends or making fresh contributions, volatility lets you buy more units when prices are low.
Upgrade portfolio quality: Review your holdings and use this period to replace underperformance with better-quality assets trading at reasonable prices.

For long-term investors—if you are ready—market corrections can be a gift.

In unstable markets, headlines become dramatic and fear rules. Making hasty decisions under market pressure might, however, be detrimental.

Ask yourself the following:

• Is my choice motivated by emotion or principles?
• Should I sell now, what will I forfeit?
• For what length of time am I investing?
• Although keeping current on economic trends is smart, obsessing over daily price swings can cause stress and result in bad decisions.
• To examine your portfolio, instead plan frequent check-ins—quarterly, even. Emphasise basics such valuation, corporate earnings, and long-term growth possibilities.
• You will much benefit from a calm, consistent attitude than from a reactive one.

Grounded in the methodology of your SMSF, a systematic approach is significantly more effective than hasty decisions.

Although keeping current on economic trends is smart, obsessing over daily price swings can cause stress and result in bad decisions.

To examine your portfolio, instead plan frequent check-ins—quarterly, even. Emphasise basics such valuation, corporate earnings, and long-term growth possibilities.

You will much benefit from a calm, consistent attitude than from a reactive one. Using a service such as Signal Savvy Investor which can quickly and easily filter the wheat from the chaff and guide you to quality stocks can also help you stay on top of investment decisions.

Consult a licenced financial advisor or SMSF specialist if you’re unsure of your decisions and strategy. An external viewpoint provides tailored advice and helps you to understand the wider picture.

When deciding whether to rebalance, allocate assets, or apply drawdown techniques—which are quite complex decisions—this can be very helpful.

Market volatility can be unsettling especially for those in charge of their own retirement savings. With the correct strategy, though, you can negotiate these phases without compromising your long-term objectives.

Key for SMSF trustees is planning, discipline, and a long-term perspective. Follow your strategy, keep diversified, and resist allowing fear guide your actions.

Volatility is unavoidable; however, your response is under your control.

Disclaimer: This page is meant to offer general information only. It should not be taken under consideration as financial advice since it is not such. Before deciding on your SMSF investments, you should speak with a licenced financial adviser.