The roller coaster ride continues in the Australian and international equity markets with the hike of interest rates by Central Banks, and the ongoing Ukraine-Russia war creating uncertainty and tension. Typical superannuation balances have dropped and people are making comparisons with the Global Financial Crisis (GFC) in the mid 2000’s. So, what happened during that time, and can we learn anything from the past? 

Some investors lost confidence during the depths of the GFC and made investment decisions with long-term consequences. For example, let’s take someone in 2006 who had $100,000 invested in super in a balanced option. We’ll compare the outcome for those who decided to stay with their original strategy, and those who switched to cash when confidence was low. 

Let's compare the reactions

Members who didn’t make changes to their long-term strategy saw their account balance climb after the GFC because they left their investment to recover, rather than crystallise their capital losses. Their $100,000 would now be worth $238,202*. 

But the members who switched to cash and then returned to the balanced option when the market recovered (i.e. when the stock market reached its previous pre-GST peak) had a quite different story. Their $100,000 investment is now worth $172,376*.  

That’s about a $65,000 difference.  

Understandably, in the middle of such a catastrophe any loss will be felt acutely. But changing your strategy when the markets are down means you may miss out on gains when it recovers, crystallising your losses. 

What can we learn from the past? 

If these dramatic ups and downs in the market have proven anything—it’s not to panic. Investments like superannuation are for the long-term and you should expect some volatility along the way. It can be a nerve-wracking journey but history has generally shown that when markets take a big hit, they also tend to recover. And, those investors that stay with their strategy instead of changing it, often reap the benefits over the long term. 

Can I prepare for the future? 

We don’t have a crystal ball so it’s impossible for us, or anyone, to predict what will happen with investment markets going forward. However, in time, it is likely that the concerns afflicting financial markets will fade, and optimism will return. And that’s something else we can learn from the past; when optimism returns, financial markets can recover more quickly than you can imagine.  

What you can do now is decide on how much risk you are willing to take considering your own personal situation. If you’re unsure of your risk tolerance you can get general advice or information about your investments over the phone by speaking with an Adviser from TelstraSuper Financial Planning. This type of advice won’t cost you anything extra as it’s included in your membership fees. 

We can also provide advice that’s tailored to you 

Superannuation is an important long-term asset, so it makes sense to have a plan about how you’re going to manage it. Whether you’re planning to be conservative and protect your asset during this time, stay the course with your current strategy, or take advantage of the market volatility, we recommend that you consult a financial adviser if you require advice tailored to you. To book an appointment with a TelstraSuper Financial Planning Adviser call 1300 033 166 or fill in the online form and an Adviser will call you back. 

For the latest market updates from our CIO Graeme Miller visit our market volatility page.   

Want to hear from Graeme directly? 

A volatile market can be very worrying, so Graeme will be hosting a couple of live webinars in July to provide a brief market update and answer any questions you may have. Register now for the “Your volatility questions answered” webinar to secure your spot.  

Register now 

 

*Based on performance figures as at 31/5/22.  Past performance is not a reliable indicator of future performance.