The recent fall in the US stock market has caused increased anxiety in global markets, including the Australian share market. This follows an extended period of strong gains in those markets that have benefited NGS Super members who have some of their super invested in Australian Shares, International Shares or a diversified option such as Diversified (MySuper) or Moderate Growth.
However it’s natural that members who are now seeing fluctuations in their superannuation account balance will be concerned about it, and will wonder whether they should stick with their long-term investment strategy or switch to a more conservative investment option. Here are some points to bear in mind:
The correction was not unexpected
After successive record highs, it was widely accepted that a market correction was likely to occur sooner rather than later.
Corrections are normal
Volatility is an inevitable part of investing in share markets and corrections occur regularly. There was a notable correction that took place between December 2015 and February 2016.
Put the correction into context
In relation to major global share markets and in the context of their earlier strong performance, the correction has only brought us back to levels reached in the December quarter last year.
Investment fundamentals are still strong
Despite the market commentary, global economies are performing well and company earnings continue to improve. Inflation is rising slowly in the US while Europe and Japan remain well below central bank targets. Both of these factors should provide continued support to growth assets.
It’s not about slowing economic growth
The correction in markets was not caused by concerns of slowing economic growth, but fears of further rises in interest rates – particularly in the US.
Diversified investment options should mitigate the effect of the correction
Most NGS Super members are invested in a diversified option – usually in one of our default investment options (Diversified (MySuper) for Accumulation accounts and Moderate Growth for Income accounts). While these options do have exposure to both international shares and Australian shares, they are well diversified across multiple assets such as property, infrastructure, fixed interest and other alternatives. These assets tend to perform differently to share markets and this provides a good buffer against reductions in share valuations.
Members who ‘panic switch’ could miss out on the market rebound
Historically, most market corrections are followed fairly quickly by a rebound. There’s a chance that members who ‘panic switch’ could crystallise a loss by switching out of their long-term investment strategy into more conservative options, and then miss out on the rebound when markets recover.
It’s important to consider your investment timeframe and risk appetite before making a decision to alter your investment strategy. If you have any questions please contact our Helpline on 1300 133 177, Monday to Friday between 8am – 8pm AEST/AEDT. If calling from outside Australia phone +61 3 8687 1818. Alternatively, you can speak to your financial adviser.