Investing in shares of companies can be a good way to benefit from economic growth. While history shows that share markets tend to rise in value over the long-term, this growth tends to be uneven as share prices can go up and down in value (this is called volatility).

ABOUT VOLATILITY

Volatility is the variation of an asset value relative to its long-term price trend. This tends to be higher for shares than bonds or cash. Naturally, people are much more concerned about volatility when shares are falling below their long-term trend than when they’re rising above it. Share price volatility is a normal part of long-term investing. It’s a drawback that investors must accept in order to gain the higher expected long-term returns from shares, compared to savings in a bank account. Team Super’s investment team are experienced and prepared for dealing with market downturns.

WHY DO SHARE MARKETS SOMETIMES FALL STEEPLY?

Share markets fall when investors change their view of expected company profits, as these pay for dividends, share buy-backs and new investment projects. If investors are worried about the future, they sell their shares as they look for safer assets. This may be due to a pandemic (as we saw at the start of 2020 due to COVID-19), rising energy or raw material costs, trade interruption or an increase in interest rate expectations. Geo-political activities can also cause markets to experience volatility (such as ongoing tensions between Russia and Ukraine, US political relations and negotiations in the Middle East).

HOW DOES SHARE MARKET VOLATILITY AFFECT YOUR SUPER?

Members who invest their super in a pre-mixed investment option have some level of exposure to shares. As a Team Super member you can choose to invest in any of our pre-mixed investment options, which are diversified across various asset classes to match different investor risk profiles, as well as a number of single asset class investment options, which allow you to determine your own asset allocation. The general rule is that as the potential for a higher return increases, the risk of loss also becomes greater.

DOES A STEEP FALL IN THE SHARE MARKET MEAN THAT I HAVE LOST MY SUPER?

If your investment mix includes shares, a fall in share markets will likely reduce the unit price of your super and hence your super balance. This is not necessarily cause for panic, as your number of units will not have changed.

When share markets fall, a well-diversified portfolio will generally recover over the long-term.

Share market losses are only realised if you sell (or change investment options) following a sharp decline. Staying the course and remaining invested brings the opportunity to benefit from a share market recovery – such as in the year following the COVID-19 share market crash when Australian shares returned 52.65%.^

SUPER IS A LONG-TERM INVESTMENT

If you see the value of your super go down, it is never easy. However, you should remember that super is a long-term investment and share markets generally recover over the longer term. Members approaching retirement should ensure that they have a level of share market exposure that’s appropriate to their own circumstances. Enough to provide some protection against inflation, but not too much that a market crash could damage their retirement plans.

Members who are still some years from retirement should remember that a market fall may be an opportunity to buy new shares (or units in a super fund) at a lower price than before. Over time, they’ll also benefit from compound returns delivering long-term growth to help enjoy a comfortable retirement.

When it comes to super, it’s important to not put all your eggs in one basket, and to consider balancing long-term financial goals against your willingness (or capacity) to live with the risk of losing money, especially over the shorter-term.

^{^ Source: Bloomberg (S&P/ASX200 Total Return Index: 23 March 2020 – 22 March 2021)}