Investment updates

Market volatility means the ups and downs in markets as assets change price. When asset prices change it can change the value of your investments, including your investments in super.

Market volatility happens as investors react to different pieces of news and try to assess how the new information might affect returns from their investments.

It’s a normal part of investing and happens in response to many different things including economic data, political announcements and geopolitical events.

In early April, the US administration announced a raft of tariffs on its trading partners, including Australia.

Tariffs were expected, but the tariffs announced were higher and broader than previously thought. As a result, share markets in the US and around the world fell sharply in the days following the announcement. This included the Australian Stock Exchange (ASX).

On 10th April, the US administration did an about turn and announced a 90-day delay before many of the tariffs would be implemented. This caused share markets to rise and recoup most of their previous losses.

A tariff is a tax that a government places on goods imported from another country. Tariffs have the effect of making imported goods more expensive compared to locally produced goods. They’re often used to protect a country’s domestic industries from international competition, and to raise money for the government.

Tariffs generally cause economic growth to slow and raise prices for consumers in the country imposing the tariff. This can also cause inflation to rise.

The US is the world’s largest economy. If the tariffs are implemented, they will likely upend global trade and slow it down. This will negatively impact the US economy but other world economies as well, particularly those with significant trade relations with the US.

No one can predict exactly what will happen next. However, we are likely to see more volatility in markets as investors try to deal with the uncertainty around different tariffs announcements coming out of the US administration.

Recent events are a good reminder of why we always encourage members to stay calm and not react immediately when markets become volatile. Since the beginning of April, we’ve seen markets fall and then rebound shortly afterwards, and you will have seen this reflected in your super balance as well.

Short-term market volatility like this is a normal and expected part of investing and happens in response to many different things. Over the period your super is invested, it’s likely you will invest through strong markets as well as more difficult periods and even recessions.

We’ve been here before - the Global Financial Crisis and the COVID-19 pandemic are two examples of periods when significant market volatility was followed by a recovery in markets.

While no one can predict the future, history shows us that market activity like this is not unusual, it happens regularly, and markets generally settle down and recover.

Often the best course of action is to focus on your long-term goals and stick to your long-term strategy. If you switch after a market fall you risk locking in losses and not benefitting when markets rise again. Short-term volatility typically has little impact on long-term returns, but switching can have a negative effect on your balance over the longer term.

You can see in the following graphs the effect on members’ balances of switching to cash following the Covid-19 market falls.

Source: Aware Super. The chart shows $100,000 invested in the Aware Super Future Saver High Growth option on 31st January 2020 and the different unit price investment return series; comparing staying invested in High Growth with switching to the Cash option on 31st March 2020. Past performance is not a reliable indicator of future returns. See our website for Investment Performance of our investment options.

Source: Aware Super. The chart shows $100,000 invested in the Aware Super Retirement Income Conservative Balanced option on 31st January 2020 and the different unit price investment return series; comparing staying invested in Conservative Balanced with switching to the Cash option on 31st March 2020. Past performance is not a reliable indicator of future returns. See our website for Investment Performance of our investment options.

You can be confident that your super is in expert hands at Aware. Our specialist investment team is experienced at managing your investments in all market conditions and through different market events.

Our long-term focus and diversified portfolio are designed to ride out periods of short-term volatility and to grow your savings over the long term.

If you’re one of our younger members, remember that you have a long-term investment horizon, so don’t need to worry so much about short term dips. It’s likely you’ll be investing through periods of strong growth as well more difficult periods and have time on your side to build your savings.

If you are nearing retirement, remember you will also likely have a long-term horizon. If you’re invested in our default Lifecycle option, which is where most of our members are invested, our approach means your super is less exposed to share market risk over time, which can help reduce the impact of volatility.

If you’re retired, we understand that you are funding your lifestyle from your super balance – so safeguarding what you have is very important. If you’re invested in one of the options typically chosen by retirees, we build in more defensive assets to help cushion your balance from extreme market falls – to help give you confidence that your money will last for longer in retirement.

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