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Here’s what happened in the 2023 financial year

Last year in 2022 and at the beginning of 2023, there were a few headlines that probably caught your attention.

These include ongoing global geopolitical tensions, particularly the war in Ukraine.

There was also rising inflation, as we emerged from Covid-19 lockdowns, and you’ll no doubt have noticed the cost of things like food and electricity going up.

Meanwhile, interest rates have also been rising as central banks try to control inflation by raising rates.

Damian Graham: Hi, I'm Damian with an update on your super and the markets this year. In this video, you'll find out more about what's been happening with the markets, our investment strategy, and also the road ahead and what we expect over the coming months. Last year, in 2022, there are a few headlines that probably caught your attention. Those include ongoing geopolitical tensions, particularly the war in Ukraine. There was also rising inflation as we emerge from COVID 19 lockdowns, where I'm sure you've noticed the cost of things like food, gas and electricity all going up. Meanwhile, interest rates have also been rising as central banks try to control this inflation. These issues causing market uncertainty as we start the new financial year in July 2022. You can see that uncertainty in this chart, which tracks the MSCI World Index. This shows how a broad range of large and medium sized companies performed across 23 different countries around September. You'll notice that markets dropped quite quickly. This was in part because investors were still uncertain about the economic outlook and how much interest rates would need to rise.

You might remember that during COVID central banks, including the Reserve Bank of Australia, had talked about interest rates being on hold for the long term, even until 2024. So the changing environment in which interest rates were rising rapidly caused markets to react negatively. But as investors began to focus more on an eventual sustained pause in interest rates, we saw an overall rise in global markets. This is a normal part of investing and we expect markets to go up and down over time. You can see that generally this financial year has been good news with markets recovering over the past nine months. Most members will have seen an increase in their retirement nest egg as a result. One of the best ways to see your super grow over time is to invest in a good variety of quality assets, which is exactly what we do. Our team of specialists focussed on building portfolios that they believe are likely to keep doing well in future. Aiming to ride out any short term marketplace. And because these portfolios are so well diversified, when markets fall and members in these diversified options tend to lose less than the headlines suggest. You've probably heard of people making the switch to cash in uncertain times. But usually the best course of action is to remember your long term goals for retirement and stay invested.

Often, members are unsure of when to switch back and so leave their savings in cash. This means you will lock in your losses and miss out when markets rebound and start to rise. In these charts, you can see the impact it has on your super balance over time. Here we show the returns for our high growth and conservative balanced options compared to how cash performed. In both of these examples, you would have been better off staying invested in one of these diversified options and riding out the market downturns as most of our members have time to wait out downturns even when they're retired. Switching to cash is usually not the best way forward, but if you'd like reassurance, we have friendly experts who can help. So talk to us before you make any changes. As the saying goes, it's your time in the market, not timing the market that counts.

Trying to invest just before prices rise or selling just before they fall is not only nearly impossible, it's also not as effective as investing for the long term. For instance, things have performed poorly in the past. You can have a great year, the next at Aware Super investments that didn't perform as well in 2022 were good performers for us this year. Like our investment in international shares and our preference for growth shares, which have been winning off the back of the tech sector's recent resurgence. While we always consider how current events might affect our investments in future, we don't overreact to short term noise. Looking ahead, there are some key things we're monitoring. We're seeing signs of inflation coming down, and over time we should see interest rates control this further. For goods and services like housing, education and healthcare, the slower to steady in price, could see inflation continue. So we might still see some rate rises over the next year. We know a slowdown in the economy is coming, that's the intended goal of the central banks as they try to curb inflation. The question now being asked is how slow will it get? In other words, will it be a mild recession or a deeper one? Let's take a look back at what we've covered. The performance of our high growth and conservative balanced options. The positive year in markets despite ongoing geopolitical tensions, rising inflation and interest rates. The value of diversification and how it can help when markets fall. Timing the market is nearly impossible and not as effective as investing for the long term. And finally, signs of a slowing economy.

It's been a big year in markets and there's a lot to navigate. If you're concerned about the impact of inflation on your income and retirement, make an appointment to speak to your planner.

These issues caused some market uncertainty as we started the new financial year in July 2022. You can see that uncertainty in this chart, which tracks the MSCI World Index. This shows how a broad range of large and medium-sized companies performed across 23 countries.

Source: Bloomberg. Global Shares: MSCI World, data to 30 June 2023.

Around September, you’ll notice that markets dropped quite quickly. This was in part because investors were still uncertain about the economic outlook, and how much interest rates would rise. You might remember that during COVID, Central Banks – including the Reserve Bank of Australia – had talked about interest rates being on hold for a long time, even until 2024. So the changing environment, in which interest rates were raised rapidly, caused markets to react negatively.

But as investors began to focus more on an eventual, sustained pause in interest rates, we saw an overall rise in global markets. This is a normal part of investing, and we expect markets to go up and down over time.

You can see that, generally, this financial year has been good news, with markets recovering over the past nine months. Most members will have seen an increase in their retirement nest egg as a result.

Investing is a long game

As the saying goes, it’s your time in the market, not timing the market that counts. Trying to invest just before prices rise, and selling just before they fall, is not only nearly impossible – it’s also not as effective as investing for the long-term.

For instance, things that performed poorly in the past year can have a great year the next.

At Aware Super, investments that didn’t perform as well in 2022, were good performers for us this year. Like our investment in international shares. And our preference for ‘growth’ shares, which have been winning off the back of the tech sector’s recent resurgence.

While we always consider how current events might affect our investments in future, we don’t over-react to short-term noise.

Future outlook

Looking ahead, there are some key things we’re monitoring:

  • Inflation is coming down
  • Economy has been resilient, but we are seeing cracks

We’re seeing signs of inflation coming down, and over time we should see interest rate rises control this further. But goods and services like housing, education and healthcare that prove slower to steady in price could see inflation continue. So we might still see some rate rises over the next year.

We know a slowdown in the economy is coming - that’s the intended goal of the central banks as they try to curb inflation. The question now being asked is how slow will it get? In other words, will there be a mild recession or a deep one?

What are we thinking about, heading into financial year 2024?

Looking forward, the economic backdrop we’ve faced over the past year is likely to continue. Even if we have seen the peak of interest rates (which is not certain), inflation is still high and ongoing global geopolitical tensions are likely to make markets volatile at times, and affect returns.

At the same time, it’s important to remember that economic cycles (which include periods of expansion as well as contraction) are normal and expected. And the good news for investors is that markets are forward-looking, which means that they have already priced in the prospect of a slowdown and may not therefore fall significantly if a serious slowdown eventuates.

As we invest, we are always thinking about the long-term, but also about how current market conditions and themes might impact our view of the future.

Related information

Read our full Market Review and Outlook

Questions? We've got answers.

It’s been a big year in markets and there’s a lot to navigate. If you’re concerned about the impact of inflation on your income in retirement, speak to your planner at your next appointment.

Alternatively, if you haven't booked in your review appointment, call us on 1800 620 305 to book your next appointment.

Disclaimer

This is general information only and does not take into account your specific objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our Financial Services Guide, any relevant product disclosure statement & Target Market Determination, before making a decision. Call us or visit our website for a copy.

Issued by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL No. 238430), wholly owned by Aware Super (ABN 53 226 460 365) whose trustee is Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340). For customer service please call 1800 620 305. Financial planning services are provided by Aware Financial Services Australia Limited, ABN 86 003 742 756, AFSL No. 238430. Estate planning services are provided by Aware Super Legal Pty Ltd (ACN 606 835 170), an Incorporated Legal Practice.