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As the world deals with Coronavirus, international economies have been hit hard. Uncertainty has created market volatility at an extraordinary pace, leaving Aussies extremely worried about the impact on their superannuation.
So what’s actually happening? How should you react to the falls?
Key points:
Recent market volatility has led to a drop in superannuation balances.
The falls in the past 30 days have been substantial in response to the evolving threat of the virus.
Share market falls are normal. By reacting to this volatility now this may mean you realise losses that are otherwise paper losses only.
You shouldn’t make important financial decisions based on a few weeks of performance or advice you read on social media.
COVID-19: Impact on Australian Super
Coronavirus has created worldwide uncertainty about the future, causing people to panic. Due to lockdowns and market volatility, international and Australian shares have taken a hit, with the All Ordinaries dropping from record highs of around 7000 in mid-February to intraday lows of around 4500 at the current low point. At the time of writing the ASX is currently sitting at 5181 (30.3.2020).
While this does seem concerning, to put it in perspective, in February 2016 the All Ords sat around 5000, around 5500 in December 2018 and hit around 3500 during the GFC in 2009.
With global Stockmarkets falling in the vicinity of 30-35% from their highs in February 2020 the impact of this is being felt on Investment portfolios. Due to balanced or growth portfolios having a large degree of exposure to share markets, returns are down with the median growth fund loss being 13% as of 17.3.2020.
For insight into how your own superannuation has been affected, you should contact your fund and work with your financial planner.
Uncertainty still looms, and with such drastic changes every day, we cannot predict what will happen next, when the market will reach its lowest and when things will be ‘back to normal’. And although it may be tempting, trying to time the market and making changes to your current superannuation situation may not be the right way to go. The one thing that is common with all bouts of extreme market volatility or crises of the past is that they all end. Markets have always recovered – we just don’t know when and how long it will take this time.
Understand how a financial adviser can support you with your need for financial security. Get in touch.
How you should respond to these events
Human emotion and response
At this time, it is very normal for investors to feel scared or fearful about the future. We are in uncertain times. This feeling can make us feel as though we should act – do something to control what we cannot control.
Each person’s response to market volatility and falling markets will be different. It’s important not to let your emotions and fear lead to irrational decision making. Our recent article on risk tolerance helps to explain this further.
What is happening right now is out of the ordinary and if it is rattling your nerves too much, get in touch. This is what we are here for.
How can you prepare for market downturns?
First and foremost, it is important to remind yourself that pricing variation is the most reliable element of markets. Volatility is normal.
While history doesn’t repeat itself, we can learn from past events to understand what is likely. What we have learned from similar downturns or crashes in the past is that those who stay the course and remain invested do better than those who exit at the bottom (sell out) and then wait until the market recovers and they have more confidence to join back in.
“Any decision to sell involves a decision in the future on when to buy. History, experience and statistics tell us people sell and buy at the wrong time. Staying the course delivers better outcomes.” Advises Chris Ogilvie, Senior Adviser and Director of Invest Blue. “If you have a good plan – stick with it. Realising losses and throwing out well-laid plans doesn’t seem to make sense. We have planned for market strength and weakness; our portfolios and investment strategies are designed to help protect in just these times.”
The best way to prepare for downturns is to invest in a strategy that acknowledges that downturns will happen.
As we spoke about above, although there has been a drop over the last few weeks and months, we have been fortunate with strong growth year on year since the GFC. We hold strong on our position on having a disciplined investment strategy, having true diversification and taking advantage of opportunities especially through the use of dollar-cost averaging. Dollar-cost averaging is where you routinely make contributions over time, whether markets are up or down.
Who can you turn to?
We also cannot stress enough, avoid making decisions based on advice you read on social media, from media outlets, and even articles from reputable sources. This advice will not be tailored to your specific situation and one person’s lived experience WILL NOT have the same impact on yours.
Your best option is to speak with an adviser about your specific situation so you can be fully informed and make a decision based on what is important to you.
Actions you CAN take now
Now is a better time than ever to take a step back, re-evaluate your current situation and think about your goals.
No one can predict what the lasting implications of coronavirus will be, but we are here to help you move forward. If you would like assistance from a Financial Adviser, please get in touch.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
