Don’t panic on investments
September 9th, 2019
Amid concerns about a possible recession, a share markets expert explains why now is not the time to make a panicked decision on your super investment option.
Rising talks of a recession, interest rates moving towards negative territory and tumbling stock markets have given people plenty of reason to worry.
However, letting the negative data panic you is the worst thing you can do, and there are still many reasons to be cheerful. Most Australians’ primary exposure to the stock exchange is through their super funds, which saw returns grow on average 1.4 per cent through July.
For the rocky days since August began, growth funds are down 2.2 per cent, but after factoring in July’s positive returns that reduction shrinks to only 0.8 per cent.
Chant West researcher Mano Mohankumar says the current market shakeout wasn’t unexpected, as “there are always ups and down in markets”. However, the performance of super has demonstrated how it protects members from short term fluctuations.
“Growth fund performance isn’t dependent on share markets alone,” Mr Mohankumar said.
Typically, growth funds average about 55 per cent invested in shares and listed property, with the rest in a combination of unlisted infrastructure, property, and defensive assets like cash and bonds. That mix protects members from the full brunt of share market downturns.
|Super fund equities versus equities|
|Median growth fund||-2.2%|
“So while Australian shares and hedged international shares are down 5.5 per cent and 4.7 per cent respectively in August so far, we estimate that the median growth fund is only down 2.2 per cent,” Mr Mohankumar said.
Returns powering along over long term
It also makes sense to keep your eyes on the big picture to see the fluctuations in perspective. A couple of tough weeks on the share market are only a tiny blip over the longer term.
“Over 10 years growth funds have averaged a return of 8.4 per cent a year which is better than expected when the system was founded,” Mr Mohankumar said. “There’s no need to panic and you shouldn’t make decisions based on short term factors. Older people who are closer to retirement are more affected by short term market changes, but they are usually in more conservative options.”