Walker’s Accountants principal and financial adviser Steve Walker said the market dropping in value was “short-term”, but people about to go into retirement may have to stay in the workforce for longer.
“Pre-retirees — who, in a volatile market are at the prime age of risk — can extend their working life,” Mr Walker said.
“Their money is at its peak value; if your time to work is collapsing, you’ve got to look after your lump sums.
“If your balance has been knocked around, the first thing you do is buckle down, cancel holidays and work for another couple of years.
“People certainly wouldn’t be quitting their jobs this week, unless they hate their job.”
Mr Walker said stock markets were always going up and down; and people with diversified portfolios should not panic.
“Even though Tuesday’s trade dropped 17 or 20 per cent, people who have properly diversified their portfolios with risk tolerance have only seen a drop of six to eight per cent,” he said.
“The big issue for a volatile market isn’t volatility itself, it’s sequencing risk.”
Sequencing risk is the danger that bad timing of withdrawals from a retirement account will have a negative impact on the overall rate of return available to the investor.
Mr Walker said if people were drawing down when prices were low, then “you crash into the side of a hill”.
“The Global Financial Crisis in 2008 was an incident where there was permanent damage to portfolios,” he said.
“If you’re in the wrong asset allocation and taking too much risk, then you’ll get permanent damage,” he said.
“People should start de-risking themselves — they need to psychologically know what their risk tolerance is, know their risk capacity, and the optimal level of risk to achieve financial results.
“Make sure you’ve got a nicely diversified portfolio.”
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