Understanding market ups and downs

It’s hard to miss the news right now, especially reports about the conflict in the Middle East. Financial markets around the world are reacting quickly to these developments.

It’s not clear how long the conflict will last or how it may affect the global economy. So far, the biggest impacts have been felt by companies that are especially sensitive to changes in energy prices and companies linked to global travel, such as airlines.

Our portfolios are well diversified and designed to withstand market ups and down.

The Middle East is a small investment market overall and we have very little invested in Middle Eastern assets. However, the Middle East is a major producer of key commodities such as oil and gas.

Concerns about future oil and gas supply have led to sharp increases in energy prices. Higher energy prices can impact countries by slowing economic growth and putting upward pressure on inflation. This is especially relevant when inflation remains above central bank targets in many countries, including Australia.

Markets can move sharply when new information surprises investors. This can cause investors to rethink expectations for the outlook for growth, inflation, and company earnings. When this happens, markets can rise or fall quickly over short periods.

Members invested in options such as High Growth, Growth Plus, Growth, Index Diversified and Australian and Overseas Shares may see bigger changes in returns. These options invest more in share markets, which can move up or down quickly. However, our diversified options, like the Growth option, have generally exhibited less volatility in recent days than our options that are more concentrated in shares.

Our lower risk investment options generally move less in the short term. However, they may also have lower long‑term return potential.

Over the long term, global shares have produced strong returns. They have also played an important role in the long‑term results of many super funds.

Our Pre-mixed investment options are highly diversified and not just dependent on shares listed on the share market. We invest in a wide range of asset classes, such as Property and Infrastructure. These asset classes can help smooth returns over time and reduce risk compared to investing in a single asset class. This is the benefit of diversification.

History shows that after a period of ups and downs, markets can recover quickly if conditions stabilise and economic outcomes are better than initially feared. That’s why we believe it’s important to stay focused on your long‑term investment goals.

Volatility is a way to describe potential uncertainty or risk associated with an investment market’s future performance.

An investment that is very volatile can change in value quickly over a short period of time. An investment that is not volatile will not change in price as quickly.

Volatility can be created or increased through events such as a global pandemic, an increase in inflation and rising cost of living, interest rate rises, concerns around the banking system and geopolitical events such as the Russia/Ukraine conflict.

Members with their super account balances allocated to higher risk investment options, such as our default Growth (MySuper) investment option as well as the High Growth, Growth Plus Australian Shares and Overseas Shares investment options, will generally see larger ups and downs in their short-term returns as they have greater exposure to shares and therefore share price movements.

Over the long-term, shares typically offer higher potential long-term returns which is why they make up a larger allocation in our higher risk investment options.

Super is your savings for retirement, and we aim to grow your savings over the long term. To achieve this, we invest a portion of your super in a range of growth assets, such as Australian and international shares. Growth assets typically offer higher potential long-term returns but also come with a wider range of possible outcomes over shorter time periods, including the possibility of negative returns from time to time.

It’s important to understand that these movements are a completely normal part of financial markets especially when investing over a long timeframe and that most members have time to ride out these ups and downs.

Whilst past performance is not a reliable indicator of future performance, history has shown that there is no signal to indicate when the market has reached its low and that markets tend to recover over time. When markets recover, which can sometimes happen quickly, if you remain invested in your existing option your super will benefit from the subsequent recovery, which can significantly improve the long-term value of your account.

We are invested for the long term and so are you. By the time you retire, it is likely that your super has been invested for 30 to 40 years!

So, watching your super balance and worrying about the day-to-day ups and downs or even month to month changes is not recommended when it comes to your super. This short-term thinking can distract you from your long term goals.

Switching to a lower risk investment option during a period of investment market volatility may feel like the right decision for those close to or are in retirement who have less time to recover from losses. However, even if you’ve stopped working, your savings could be invested for another 20+ years. So, if you focus on your long-term goals, you still have the potential to benefit from a lot of growth, even once you’ve stopped working.

To better plan for retirement and help you get more out of your super, we’ve developed a range of educational sessions. These sessions are relaxed and informal so anyone can join, and they’re provided as part of your membership.

You can also check if you’re invested in the right option for you by contacting our Advice Services team.

Ever heard the saying ‘Don’t put all your eggs in the one basket?’.

By investing your super across a wide range of asset types, the risk of a big fall in your account value is reduced. This is called diversifying your investments.

Diversification works because historically not all asset types perform in the same way at the same time – when one investment is performing poorly another may be performing well.

If you’re worried about and thinking of changing your investment option, you should consider the following:

• What is your investment timeframe and what could be the future impact of changing investment options, particularly in response to short-term market ups and downs?
• Changing to lower risk investment options or making frequent switches can, over the longer term, leave you with lower retirement savings.
• In addition to missing out on future growth through investment earnings, there is the risk of not benefiting from rises in investment markets following a fall – this is known as a ‘rebound’. When the investment or asset value recovers, it can do so quickly, and it can significantly impact the long-term value of your account if you are still investment in a more defensive investment option when this occurs.
• Remember, super is a long-term investment but if you need help choosing an investment option that’s right for you, you can contact our Advice Services team for assistance.