It's all in the timing

Switching or selling investments during a downturn can scupper retirement plans

- DAVID THORNTON

Timing the market is not something we usually advocate at Money: trying to predict the future is a risky strategy. But it can work in retirement, making thousands of dollars’ difference to your precious savings.

The business cycle naturally impacts the value of your asset pool, increasing it when the market’s going well and decreasing it when it’s not.

This is par for the course for all investors. But retirees face an extra challenge.

“When you’re accumulating assets you can leave your money to keep growing, but retirees need the money; they need to feed themselves,” says Aaron Minney, from Challenger. “If the market is going down, you can’t wait it out.”

When you’re in retirement, you run the risk that you’ll sell something at the wrong time. Drawdowns during a down market can make of hundreds of thousands of dollars’ difference to your nest egg and income over time.

In finance parlance, this is called sequencing risk. Sequencing is all about the order of drawdowns.

An amount taken out of your investment pool during a bear market will have an exponentially adverse impact on your future returns compared with taking out the same amount during a bull market.

“For these members who are planning for their retirement or drawing an income from their savings, the timing and sequence of returns matter almost as much as the size of those returns,” says Jacki Ellis, from Aware Super.