Ask an adviser: What happens when investment markets fluctuate?

Information is correct as of 10 April 2025.

We chatted with financial adviser Derek Gascoigne about navigating investment choice amid market turmoil.

When thinking about an investment strategy, how important is it to consider the kind of retirement you want?

This is really important, and it applies to people who are just about to retire, through to those who might still be some years away from retirement. Understanding your desired retirement lifestyle can help shape investment strategy—even if simply expressing it as an aspirational income amount for retirement. For example, ‘I’d like to retire on at least $60,000 per year’.

If your ideal retirement lifestyle is relative to your means – in other words, your super is more than sufficient to provide for your income – then you may decide to pursue an investment strategy less prone to volatility, knowing you don’t need to take on higher levels of risk.

On the other hand, if your savings are less likely to be able to support your desired retirement income, it may be worth considering a higher-risk investment strategy. We do this with a view to obtaining returns necessary to close the gap between how much your super needs to grow, and where it’s currently headed. Taking on a higher-risk strategy means you’d need to be aware of and accept the potentially heightened levels of volatility and the potential for negative returns over short periods.

These examples consider how much risk and volatility you may need to take on, as opposed to how much risk you may want to take on. However, there’s no one-size-fits-all approach—hence, it’s essential you seek advice where possible to better understand the considerations in setting up your investment strategy.

People approaching retirement might invest in higher-risk options to turbocharge their super but may consider switching investments due to poor short to medium-term performance. What should they consider before switching?

Investment switching in a volatile market can be a dangerous exercise. First, a decision to switch (often to a more conservative, seemingly ‘safer’ strategy with a higher allocation to defensive assets) in a market downturn may mean you’re reacting to an event that’s already happened—the horse has already bolted. But even if you get the timing right, having made the decision to switch, there’s almost always a second decision required about when to switch back. There’s never any obvious ‘signal’ letting you know when that secondary switch should be made and often people miss the recovery.

When deciding what to do, it’s important you don’t make your reference point the time when your account was at its highest value. Instead, focus on the longer-term returns your investment options generate. Performance data only tells us what’s happened, not necessarily what’s going to happen. Planning based on looking back is a bit like driving your car by looking through the rear-vision mirror—you might get lucky for a short while but eventually you’ll crash.

If you’re approaching or just entering retirement, it’s important to remember that just because you’re entering a different phase, it doesn’t mean you’ll stop investing. The average retiree looks to spend the remaining decades of their life in retirement, making their investment horizon still significantly long-term. This means there may still be years to recover from a market event.

The key is to ensure you approach retirement with the most appropriate investment strategy to begin with. That means having the discussion and making an informed choice or approach as early as possible. This is also a part of mitigating sequencing risk—the risk of receiving lower or negative returns on investments during the early years of retirement, which can significantly impact overall retirement savings longevity.

How might this advice differ for those who feel confident they’re on track to support their desired retirement lifestyle?

The message on switching, is likely to be much the same—stay the course if you think your strategy is right for you. If you’re in this situation, you may feel more confident about being able to absorb the poorer short-term performance from those options, meaning less thought needs to be given to reacting.

However, those with more aggressive risk appetites may use downturns in the market as a buying opportunity to boost future growth—buying low. The guiding principle though should remain largely about how much risk you need to take on, versus how much risk you want to take on.

What are the risks involved with reacting to markets?

Psychologically, as humans, we suffer losses far more than we enjoy gains, so we often take actions to soothe our immediate anxieties—but those decisions may not be grounded in logic or reason. Short-term thinking with an asset like super – designed with the long-term in mind – doesn’t stack up. Reacting to market events often isn’t in our best interests.

Switching out of an option that’s declined is potentially crystallising a loss. When an account falls in value, the loss isn’t realised until the account is switched or redeemed. It’s like selling a share after its price has fallen. If you switch into an option that’s performed well, you might be buying in at a higher price. This concept of selling low and buying high is the opposite of what investors generally seek to do—buy low, sell high.

It’s often best to stay the course. Yes, your investment option may have had a bad year, but history has shown that all options go through their peaks and troughs and tend to have more good years than bad years.

Do you need help from an adviser?

Our award-winning advice team^# can help—call us or talk to one of our financial advisers.