Super is likely the longest investment you will have, which is why Aware invests for the long term, to help our members retire with more.
By taking the longer view, Aware has continued to consistently deliver strong long-term returns. In fact, all options in MySuper Lifecycle are top 10 performers over the 10-year period to 30 September 2022.
Although long-term investment returns can be planned for, and can even-out bumps in returns, short-term market ups-and-downs are largely both unpredictable and unavoidable. This is a normal part of investing and therefore, unfortunately, some losses along the way are to be expected. Members are rewarded for taking on risks (by investing in growth assets like shares for example) in the long term, but in the short term, returns from these investments are less certain, and can be quite different from long-term expectations.
Challenging market conditions are driving the current period of market uncertainty. And negative returns in share markets and bonds have impacted our returns in the short term.
Diversification reduces the extent of market losses
Not putting all your eggs in one basket helps smooth out returns and spread out risk. This can mean your balance falls less than the overall market, with losses in one type of investment being balanced by gains in other asset classes for example. This is called diversification.
Short-term turbulenceMost members are invested in one of Aware’s diversified options which invest in this way; spreading a member’s investments across lots of different assets such as shares, property, and bonds as well as across different geographical locations. This protects against the risk of being “all in” in one asset class that performs badly, such as the share market, meaning in bad times you will lose less as your risk is spread.
Our Aware Real Estate property portfolio is currently valued at over $1.5 billion
Our commitment to our members
As one of Australia’s largest super funds, we want to reassure our members we remain in a strong position to continue to deliver on our investment strategy. We remain focused on building and maintaining a diversified, high-quality portfolio of investments which will deliver strong long-term returns and help our members achieve their retirement goals.
Aware’s large and experienced investment team continues to monitor our portfolios and investment markets and given our size and scale, we are in a stable position and able to pursue quality opportunities which can result from market downturns.
Below we give some more colour on two important areas markets are currently focused on; what central banks are planning with interest rates, and inflation.
Current market conditions
Central banks and interest rates
Most countries have central banks. The most important of these is the US Federal Reserve, commonly known as the Fed. Central banks have lots of responsibilities but one of the most important is setting interest rates. Interest rates are important because they affect many things such as how much you pay on your mortgage, how much individuals and companies have to pay to borrow money, which can also affect how much money is left to spend on other things like food and clothing for example. Generally speaking, the higher the interest rate the more negative effect on the economy. At the moment, the market is very interested in what central banks are doing as most are raising interest rates.
Another very important area concerning markets is inflation. You will have seen a lot of coverage around inflation in the media and probably experienced the impact yourself in the rising cost of fuel, food, and the general cost of living. Trying to bring inflation under control is one of the main reasons central banks are raising rates. Unfortunately, inflation has a negative impact on markets as company costs increase, reducing profitability unless they can increase prices in line. Inflation also reduces demand in the economy as households have less money to spend on things as the cost of living rises.
As a result, inflation has an overall negative effect on markets. Unfortunately, the alternative of letting inflation run unchecked is an even bigger risk for markets as costs can potentially spiral out of control.
So both interest rates and inflation are impacting markets globally at the moment and these concerns are expected to continue for some time yet. This means that uncertainty in markets is also likely to continue, at least in the short term.