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I am young and have many many years before retiring, so people always advise me to choose a high risk/growth strategy for my super. Ok, say i accept it, then my question is:

Is it worth switching your super's investment strategy frequently according to market condition, as opposed to just sticking to the high growth one I chose? i.e. Should I choose a low risk option when the market is not doing so well, and high risk one when it is? Or just stick to the high growth one given there are many years ahead of me.

I understand most fund charge you a fee for making frequent switch, but that's not my point, so let's not worry about that.

  • you should monitor the market conditions for your strategy, or just trust your fund to make that decision for you. you are asking for some kind of framework that enables a passive medium but it is purely at your discretion – CQM Apr 30 '14 at 4:40
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I understand you're trying to ask a narrow question, but you're basically asking whether you should time the market. You can find tons of books saying you shouldn't try it, and tons more confirming that you can. Both will have data and anecdotes to back them up. So I'll give you my own opinion.

Speculation

Market timing, especially in a macro sense, is a zero-sum game. Your first thought should be: I'm smarter than the average person; the average person is an idiot. However, remember that a whole lot of the money in the market is not controlled by idiots. You really need to ask yourself if you can compete with people who get paid to spend 12 hours a day trying to beat the market.

Investing

Stick with a mid-range strategy for now. Your convictions aren't and shouldn't be strong enough at the moment to do otherwise. But, if you can't resist, I say go ahead and do what you feel. Regardless of what you do, your returns over the next 3 years won't be life changing. In the meantime, learn as much as you can about investing, and keep a journal of your investment activity to keep yourself honest.

  • I am not trying to beat the market, or time the market. So I am not trying to switch before the market changes. It's just that after I see the market changes, should I adapt accordingly? Or is it not worth the trouble. Also, can you elaborate on the choice of a mid-range strategy? – qoheleth Apr 30 '14 at 23:27
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    I don't want to be too argumentative, but any move into (or out of) an investment is a bet that it will outperform (or underperform) an alternative. The particular strategy you propose is exactly how the majority of mutual fund investors underperform the funds they invest in. It is not worth the trouble. By "mid-range", I only meant medium risk/growth, but that is only my personal preference given my goals and tolerance for losses during the next inevitable downturn. High risk/growth is great as long as you don't get out when it's down. – monozok May 2 '14 at 4:05
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My super fund and I would say many other funds give you one free switch of strategies per year.

Some suggest you should change from high growth option to a more balance option once you are say about 10 to 15 years from retirement, and then change to a more capital guaranteed option a few years from retirement. This is a more passive approach and has benefits as well as disadvantages.

The benefit is that there is not much work involved, you just change your investment option based on your life stage, 2 to 3 times during your lifetime. This allows you to take more risk when you are young to aim for higher returns, take a balanced approach with moderate risk and returns during the middle part of your working life, and take less risk with lower returns (above inflation) during the latter part of your working life.

A possible disadvantage of this strategy is you may be in the higher risk/ higher growth option during a market correction and then change to a more balanced option just when the market starts to pick up again. So your funds will be hit with large losses whilst the market is in retreat and just when things look to be getting better you change to a more balanced portfolio and miss out on the big gains.

A second more active approach would be to track the market and change investment option as the market changes. One approach which shouldn't take much time is to track the index such as the ASX200 (if you investment option is mainly invested in the Australian stock market) with a 200 day Simple Moving Average (SMA). The concept is that if the index crosses above the 200 day SMA the market is bullish and if it crosses below it is bearish. See the chart below:

ASX200 from 2003 to 2014

This strategy will work well when the market is trending up or down but not very well when the market is going sideways, as you will be changing from aggressive to balanced and back too often.

Possibly a more appropriate option would be a combination of the two. Use the first passive approach to change investment option from aggressive to balanced to capital guaranteed with your life stages, however use the second active approach to time the change. For example, if you were say in your late 40s now and were looking to change from aggressive to balanced in the near future, you could wait until the ASX200 crosses below the 200 day SMA before making the change. This way you could capture the majority of the uptrend (which could go on for years) before changing from the high growth/aggressive option to the balanced option.

If you where after more control over your superannuation assets another option open to you is to start a SMSF, however I would recommend having at least $300K to $400K in assets before starting a SMSF, or else the annual costs would be too high as a percentage of your total super assets.

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A guy who does a sports talk show here in the US can be pretty smart about some things. His advice: If you are wondering if something is a good idea, say it out loud. In his book he cites the fact that people thought, at one time, it would be a good idea to allow smoking on airline flights. Keep in mind you are using liquid oxygen, news paper, and are 10,000+ feet up in the air. Say it like that and you hit yourself in the forehead.

Read the title of your question in a day or two, and you can answer it yourself with a resounding NO.

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