It’s natural to feel concern when financial markets experience unprecedented volatility – particularly when it comes to superannuation. After all, the money you save during your working life could have an impact on the long-term value of your super fund and your lifestyle in retirement.
Recent developments may have made you more engaged with your super fund than ever before – leading you to wonder what you could be doing for your investments at this time. When markets become volatile, is there anything you can do to help you make the most of your wealth-creation journey? Below, we offer some helpful considerations to keep in mind.
It’s important to remember that superannuation is one of the biggest (and longest-term) investments you’ll ever make – meaning, it can require a long-term view. Depending on your life stage, it can be helpful to remember that with years of wealth accumulation ahead, you’ll likely have time to ride out changeable market conditions to generate investment returns over the long term.
It’s worth noting that markets regularly experience volatility for various reasons. The Coronavirus pandemic is also a factor, but one that will likely pass in time. History shows us that markets do recover from disruptive influences – for example, the Global Financial Crisis. In the decade following the crisis, global share markets recovered and delivered returns of roughly 10% to investors.
Last year, markets also experienced volatility due largely to geopolitical influences. However, investors in share markets were rewarded over the year when markets stabilised – with Australian and global shares delivering exceptionally strong returns of 24% and 27% respectively. Market volatility can therefore present investors with investment opportunities when maintaining a long-term view of investing. For example, buying into share markets when they’re down (and cheaper) could mean the value of those investments rises when markets recover over time. But this doesn’t mean you should buy anything and everything that’s on sale. For example, a company’s share price may be falling because of other factors (for example, a management change or a legal case) that could erode its long-term potential. It’s important to consider these factors and to be confident that a company’s value will rise in the future.
At the same time, it can still be sensible to continue budgeting and saving for a rainy day – particularly in the current environment, where regular day-to-day life may be disrupted. Having a separate savings fund could offer some peace of mind in uncertain times, especially for members whose daily lives may be impacted by ongoing economic developments as a result of the Coronavirus – for example, if businesses are required to temporarily close down and employees are sent home to accommodate the Government’s social distancing measures.
But while financial markets regularly experience fluctuations and while investing for super can therefore require a long-term view, remember: super is not a set-and-forget scheme. Retirement may feel like a long time away if you’re navigating and building your finances. However, being more engaged with your fund now – even in simple ways, such as regularly reading fund updates, staying up to date on the latest market developments, or regularly reviewing your super fund to ensure it aligns with your unique risk profile and financial objectives as your personal circumstances change – could be helpful later on in life when you do reach retirement.