Share market conditions and super

There has been a lot in the news lately about the share market losing value. In this news article we address what this means for your super.

What’s happened?

Over recent months, particularly January, international share markets experienced some significant falls. Much of this has been due to the fallout from the US Sub-prime mortgage market’s problems. This along with a slowdown in growth in the US has made investors jumpy and created the most volatile investment conditions we’ve seen for a number of years.

The Australian share market has been performing very strongly for some time now and has provided investors with high double-digit returns for the last four years.  This was a great run, but at some time had to slow. This downturn isn’t a cause for alarm, it is a regular part of the investment cycle.

Conditions like these provide a timely reminder that over the long term, growth assets like shares and property have consistently returned better than defensive assets like cash and fixed interest, but tend to go up and down more dramatically, over shorter time periods.

Click here to see how historically shares have experienced lots of little ups and downs, but the overall trend has been up.

What does this mean for your super?

As a super investor you generally can’t access your money until age 55 or older. This means it is important to stay focused on long-term returns. Over the whole time you are invested markets will go up and down, and history has shown us that the markets that are most volatile in the short term, like shares and property, produce the highest long-term returns.

So what has been happening is a part of the investment cycle and needs to be viewed in that way.

We urge you not to panic or make a hasty decision to switch your investment portfolio because when you switch your options you may lock in any losses of the recent downturn. If you stay invested you will be there to benefit when the markets recover.

This has been proven in a study of the US share market that looked at returns over the last 20 years. It found that overall market performance over the time was 12.1%, compared to 3.9% when individuals made their own investment decisions. Investors lost out because they typically sold out and consolidated their loss when the markets got tough*.

Even if you are nearing retirement it is important to remember that you may continue to invest this money for many years to come, meaning that you could still be considered a long-term investor.

Why are different investment portfolios affected differently?

Basically because each portfolio is invested in different types of assets. The return each portfolio receives depends on how its underlying assets perform. This means that those with a higher allocation to shares will be most affected by the recent volatility.

* Study by Arun Abey, IPAC based on S&P 500 20 years ending December 2006.

The information in this document is of a general nature only and has been prepared without taking account of your objectives, financial situation or needs. Because of that you should, before acting on any of this information, consider its appropriateness in regard to your objectives, financial situation and needs, and consider talking to a financial adviser.