Market Outlook

Market update

At the beginning of April, the US announced tariffs on its global trading partners. The tariffs are meant to protect and promote US production, but it also bumps up the price on imported goods, so inflation is also likely to rise affecting the cost of living. As a result, markets fell sharply fearing that the US economy could potentially slip into recession.

A week later, a 90-day pause on tariffs was announced and markets rebounded. These abrupt changes in economic policy create uncertainty, and given how difficult it is to predict what will happen next, we expect these market ups and downs to continue over the coming months.

Stay invested or switch options?

Volatile markets can be a difficult time, particularly if your super balance is falling. Given current conditions, people often want to change their investment options to cash, to avoid a falling market. However, it’s difficult to predict when to jump back in and you may miss out on the upturn when markets rebound – essentially locking in your losses.

It’s good to remember that super is a long-term option. History shows that staying invested means your super can recover when markets bounce back, and recovery can come sooner than you might think. Major economic downturns like the 1970s Oil Crisis, the Dot Com Bubble bursting in 2001, the Global Financial Crisis (GFC, 2007-09), and the COVID Crisis in 2020 were all followed by recovery and market growth.

What’s the best course of action?

There are two key principles to bear in mind when markets are volatile:

1. Focus on the long term

Your super is likely to be invested for the long term – decades in most cases – so taking a long-term view makes sense.

Past events show that markets generally settle down, recover and rise again, and that short-term volatility events typically have little impact on long-term returns. If you switch to cash after a market fall, it could have the opposite and negative impact on your future. Cash can feel like a safer option, but the returns from cash are lower, and you risk locking in losses and missing out when markets rise again.

2. Diversification can reduce risk

The second key principle which can help when markets are volatile is diversification. Investing across a range of assets - shares, property, infrastructure, cash, bonds and more helps reduce investment risk.

Because all investments don’t rise or fall at the same time, or in response to the same factors, a diversified portfolio can help lessen the impact of any one market fall. When share markets fell recently, investors in a diversified portfolio will have seen their balance fall less than global share market falls.