The impact of market volatility on Australian superannuation

Markets throughout the world have been volatile even in the post-coronavirus (COVID-19) pandemic, and the war in between Ukraine and Russia and rising tension in several parts of the world, as made investors skeptical and unsure about the direction of the market, due to constant fluctuations in movement. Find out what this means for you in this article. As a Superannuation adviser in Australia, we analyze all possible factors that can affect our client’s superannuation funds. 

Volatility in the market

In 2022, investment markets were turbulent as superannuation advisor of central banks considered raising historically low-interest rates to offset inflationary pressures. Furthermore, the unfortunate scenario precipitated by Russia’s invasion of Ukraine, as well as the ensuing sanctions imposed on Russia by world leaders, is increasing share market volatility.

History shows that stock markets recover pretty quickly following comparable confrontations, but with rising inflation and interest rates on the horizon, we expect markets to remain volatile for some time.

The extent to which this affects your super is determined by how much of your super is invested in growth assets such as stocks and real estate. For example, if you’re invested in a high-growth strategy and don’t plan to retire anytime soon, you’re likely to have more of your super invested in growth assets that are prone to short-term volatility.

If you invest in a life stage fund and are nearing retirement, or if you have chosen more defensive investing strategies, your exposure to the stock market and any dangers connected with it will be smaller than if you pursue a high-growth plan.

What does this imply for you?

Stay cool and don’t panic during this time and throughout any market instability. Because super is a long-term investment, while investment markets can be volatile in the near term, they normally rebound in the long run.

Even if you’re nearing or in retirement, it’s critical to stay focused on your long-term investing plan and weigh all of your alternatives before making any big adjustments.

When considering your super and what’s going on in global markets, bear the following in mind:

• Diversification: The majority of superannuation fund members are invested in assets other than the stock market. Different asset classes behave differently over time, which helps to smooth out the highs and lows of market volatility in a certain asset class.
• Remain calm: The value of your super investment might change over time due to a variety of variables, including market circumstances. Reacting to short-term market situations may cause you to miss out on future market gains.
• Long-term investing: Because super is a long-term investment, many investment goals have a 10-year horizon. There will be times of volatility, but markets normally rebound from short-term fluctuations in the long run.
• Seek advice – If you need help deciding how much risk you’re willing to take, or if your current financial plan is still meeting your needs, you should consult with a knowledgeable financial planner. You may be better able to survive moments of volatility if you have a well-crafted financial strategy.
• Stick to your plan: Decide how much risk you’re willing to take with your 401(k) and factor it into your financial plan. You should examine your financial plan on a regular basis to ensure that it still represents your current needs. For example, if you’re approaching retirement and your super is invested in a high-growth investing plan, your risk level may be too high.

Below are some insights into the market and what is going on right now. This may help you understand the implications for your retirement fund. Remember, if you have any further queries regarding your super, we are here to assist you.

Frequently Asked Questions and Answers

What does this have to do with my investments?

Your super is normally invested in one or more asset classes depending on where it is invested and if it is in a high-growth plan (typically Australian and international shares, property, bonds, and cash). You may have seen a change in the value of your investment, which represents the success of the assets in which your super is invested. Long-term growth assets, such as stocks and real estate, fluctuate and are more volatile in the near term, but offer larger long-term returns than other asset groups.

What does this imply for my pension?

The value of your super might alter on a daily basis based on how it is invested. Each investment option’s value and performance are related to the underlying asset classes (types of investments such as shares, property, fixed interest, etc.) in which it invests, and they change in line with the performance of these assets and the market.

You may have seen a drop in your super balance if your super is invested in the Australian and/or overseas share markets.

How should I proceed?

Superannuation is a long-term investment. Changing your investment option(s) in response to short-term market changes is a significant choice that is influenced by a variety of factors, including your age, life stage, and risk tolerance. Before modifying your long-term investing plan, you should obtain professional counsel.

If you’re still accruing super and don’t plan to retire for a few years, you might want to reconsider sticking with your existing investing strategy rather than attempting to “time the market.” It is critical to note that the success of your super is dependent on your time in the market, which may be disrupted if you try to ‘timing the market,’ for example, by exiting an investment choice when its performance is decreasing and returning when markets are increasing. It’s tough to predict the market’s peak and bottom, but adhering to your plan over time will certainly put you in a better position to capitalize on gains while minimizing losses.

Alternatively, if you are nearing or in retirement, it is critical to maintain emphasis on your long-term investing strategy.

When deciding on an acceptable investment plan, it’s also crucial to keep diversification (investing in several asset classes) in mind. Diversification helps to manage risk and mitigate the impact of a big market decline.

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