The new financial year began reasonably well but the past few months have been challenging. What does it mean?

Although fluctuating markets can be unsettling, it’s important to remember that volatility is a normal part of long-term investing.

One of the main causes of the recent volatility is trade tension between the US and China. Although we’re yet to see any real impact on company profits, there are concerns that President Trump’s tariff policy could have an adverse impact on earnings and this is affecting market sentiment.

Rising interest rates in the US are also having an impact. While the official interest rate in Australia is at a record low, the US Federal Reserve has lifted interest rates eight times over the past three years because the US economy has been strengthening. This has reduced the need for stimulus from low interest rates so the Fed is returning rates to more normal levels. Higher rates affect markets by increasing the cost of borrowing and reducing profit margins.

Domestically, the weakness of the big four banks in the wake of the Hayne Royal Commission and the cooling housing market have also weighed on the Australian share market.

The impact on super accounts

If your super is invested in Australian or international shares, it’s likely that the recent volatility has affected your account balance. Options with a higher allocation to shares will be affected more than those with a higher allocation to defensive assets such as cash and fixed interest. Understanding the trade-off between risk and return is a critical part of choosing an investment option. We have options that suit most risk-return profiles. 

Should you switch options?

Switching to a more conservative investment option after a market fall ‘locks in’ losses and may mean you miss out on any rebound that might occur. When markets are volatile, it’s even more important to stay focused on your long-term strategy and think carefully before making any significant changes. If you’re uncertain, talk to one of our financial planners to make sure your investment option aligns to your goals and attitude to risk.

How do we manage investment volatility?

For most people, super is a long-term investment and we manage our investment portfolios with longer-term objectives in mind. This means we look beyond the daily news and focus on investing in a mix of good quality assets that can grow your savings over time. So rather than reacting to short-term events, we concentrate on strategies such as diversification, active asset allocation and foreign currency management to help us deliver positive long-term outcomes for members. 

What’s the outlook for the immediate future?

We expect the current volatility to continue for a while yet, as markets adjust to less accommodative monetary policies (higher interest rates) and trade tensions between the US and China continue to unsettle investors.

For more information, see our fact sheet Managing investment volatility.

Visit our financial advice page for information on advice options and how to make an appointment.

Damian Graham

Chief Investment Officer