Even the most experienced investors can be unnerved by market volatility. No matter where you are on your retirement path, it’s important to keep a level head when deciding on whether to retain, review, refine or remove your investments.
With the current market volatility, you may see your investment portfolio or super balance fluctuate, but it is worthwhile remembering that markets move in cycles, so it’s best not to panic. Instead, review and monitor your investments and risk exposure to ensure you are still on track with your goals.
What is causing the market volatility?
Market volatility refers to the variation of an asset value compared to its long-term value trend. Naturally, people are much more concerned about volatility when markets are falling below their long-term value than when they’re rising. Market volatility is a normal part of long-term investing. It’s something investors must accept in order to gain the long-term returns that are expected, compared to simply putting their savings in the bank.
Markets are affected by a range of changes, including economic, political and social factors. The past few years, which have often been described as ‘unprecedented’, it has been difficult to predict what will happen next with the market.
The global pandemic threw the world into pause, creating massive supply issues across various industries, shortages in resources and labour, heavily tilting the supply vs demand equilibrium. Add to this the war in Ukraine, flooding in QLD and northern NSW along with households venturing out from lockdowns and various government spending stimulus payments, and you’ve now got “skyrocketing” inflation.
With all this in mind, it is not surprising that the market has been volatile.
How will this impact retirement savings?
There won’t be too many investors who will be immune from this volatility, but there will be some worse off than others. Depending on the asset classes you’re invested in, how much debt you have and what level of risk you have undertaken in your investments, will all influence how your superannuation and investment portfolio will fare during this time.
Many Australians have enjoyed strong superannuation balance growth over the past two years with surprisingly resilient share markets throughout the pandemic period. Much of this was driven by stronger profits, government spending and historically low interest rates.
According to Chant West, 2021 was a top performing year for super funds, with a median growth super fund delivering returns of up to 13.4%. However, we’ve seen declines since the start of 2022, and further volatility is now expected.
Set up a time to review your investment strategy
In challenging economic times, being strategic about your investments can reap rewards in the long run. Making sudden changes to your investment strategy will affect its long-term outcomes. Investing should never be viewed as short term, nor should you be reactive nor panic when making investment decisions.
Even after periods of extreme market volatility, such as the Global Financial Crisis (GFC) and for those who’ve lived through high inflationary times (70’s and 80’s), making drastic changes to your investment portfolio can have an adverse effect. By attempting to salvage losses, you are essentially banking those losses by exiting the market.
Some asset classes fare better than others, so tweaking your investment strategy to steer away from interest rate sensitive stocks and moving towards a more diversified investment portfolio is recommended. Commodities such as gold have also proven strong when inflation is higher than interest rates.
It is important to reiterate that keeping a level head about investing is paramount and while you may feel compelled to let emotion take over, it is advised not to panic and to act strategically.
At Tribel, our wealth management plans map out your goals, expectations and risk appetite, and help you select the right investment vehicle, asset class mix and underlying investments.
When it comes to wealth management and retirement planning, it’s a good idea to review your portfolio and superannuation investments on a regular basis so as to ensure you are still on track to meet your goals within your specific timeframe. Check in with your Tribel Advisor about how your account is tracking.
If you haven’t reviewed your portfolio in a while, now is the time, we recommend making an appointment.