HOW DOES SHARE MARKET VOLATILITY AFFECT YOUR SUPER?
Super 101 | Date Posted 4 April 2025
CHIEF INVESTMENT OFFICER, SEAMUS COLLINS, PROVIDES PERSPECTIVE ON CURRENT MARKET CONDITIONS IN LIGHT OF US TARIFF ANNOUNCEMENTS.
Global markets have reacted strongly to recent US tariff announcements. Tariffs were set at levels that were higher than market expectations and will impact global trade and risk inflationary pressures and broad economic contraction. Whilst the US market was the most severely impacted, Australia has seen losses in response to concerns around further protectionist actions in response to the US Policy position.
In moments like this, context is critical with comparatively very strong markets being experienced that have seen us in positive territory for 12 months, and that despite recent activity, returns remain strong across both 3 and 5 year horizons.
For Team Super, our investment strategy focusses on diversification across infrastructure, property assets, fixed income and cash. We are not solely invested in the US equity market, and our international shares investment options has exposure across both US and non US markets and assets.
Whilst we remain comfortable with our approach, and confident in the long-term returns, we recognise that movements like this do bring about uncertainty. Our message to Team Super members is to take comfort from history, which tells us that markets can absorb shocks like this, reach equilibrium and over time, recover.
And so while the short term looks like it will favour further volatility as trade partners respond to these tariffs, it is likely the initial shock will be absorbed in the mid term and see a stabilisation of market activity.
Investing in shares of companies can be a good way to benefit from economic growth. While history shows that share markets tend to rise in value over the long-term, this growth tends to be uneven as share prices can go up and down in value (this is called volatility).
ABOUT VOLATILITY
Volatility is the variation of an asset value relative to its long-term price trend. This tends to be higher for shares than bonds or cash. Naturally, people are much more concerned about volatility when shares are falling below their long-term trend than when they’re rising above it. Share price volatility is a normal part of long-term investing. It’s a drawback that investors must accept in order to gain the higher expected long-term returns from shares, compared to savings in a bank account. Team Super’s investment team are experienced and prepared for dealing with market downturns.
WHY DO SHARE MARKETS SOMETIMES FALL STEEPLY?
Share markets fall when investors change their view of expected company profits, as these pay for dividends, share buy-backs and new investment projects. If investors are worried about the future, they sell their shares as they look for safer assets. This may be due to a pandemic (as we saw at the start of 2020 due to COVID-19), rising energy or raw material costs, trade interruption or an increase in interest rate expectations. Geo-political activities can also cause markets to experience volatility (such as ongoing tensions between Russia and Ukraine, US political relations and negotiations in the Middle East).
HOW DOES SHARE MARKET VOLATILITY AFFECT YOUR SUPER?
Members who invest their super in a pre-mixed investment option have some level of exposure to shares. As a Team Super member you can choose to invest in any of our pre-mixed investment options, which are diversified across various asset classes to match different investor risk profiles, as well as a number of single asset class investment options, which allow you to determine your own asset allocation. The general rule is that as the potential for a higher return increases, the risk of loss also becomes greater.
DIVERSIFYING ACROSS MULTIPLE ASSET CLASSES
Investors often make the mistake of investing in last year’s best performing asset class, but this can backfire. Last year’s winner can often be next year’s loser. That’s why it’s important to diversify your investments. This means not putting all your eggs in one basket but spreading your investment across different asset classes. Diversification works because positive returns of some investments make up for negative returns of others. How much you invest in each asset class depends on your investment time frame, risk tolerance and investment goal.
DOES A STEEP FALL IN THE SHARE MARKET MEAN THAT I HAVE LOST MY SUPER?
If your investment mix includes shares, a fall in share markets will likely reduce the unit price of your super and hence your super balance. This is not necessarily cause for panic, as your number of units will not have changed.
When share markets fall, a well-diversified portfolio will generally recover over the long-term.
Share market losses are only realised if you sell (or change investment options) following a sharp decline. Staying the course and remaining invested brings the opportunity to benefit from a share market recovery – such as in the year following the COVID-19 share market crash when Australian shares returned 52.65%.^
SUPER IS A LONG-TERM INVESTMENT
If you see the value of your super go down, it is never easy. However, you should remember that super is a long-term investment and share markets generally recover over the longer term. Members approaching retirement should ensure that they have a level of share market exposure that’s appropriate to their own circumstances. Enough to provide some protection against inflation, but not too much that a market crash could damage their retirement plans.
Members who are still some years from retirement should remember that a market fall may be an opportunity to buy new shares (or units in a super fund) at a lower price than before. Over time, they’ll also benefit from compound returns delivering long-term growth to help enjoy a comfortable retirement.
When it comes to super, it’s important to not put all your eggs in one basket, and to consider balancing long-term financial goals against your willingness (or capacity) to live with the risk of losing money, especially over the shorter-term.
TURN TO YOUR TEAM
It’s important to regularly review your investment mix to ensure it’s right for your needs. Our friendly team can help you understand the different investment options. Call us on 13 64 63 to find out more.
We can also put you in touch with Team Super Financial Advice for additional support to help you decide what’s right for you. Team Super members are entitled to a complimentary appointment. And did you know? Personal advice on how your account is invested is at no extra cost, but there are fees associated with providing more comprehensive personal financial advice. During your appointment your adviser will discuss the fees and how you’d like to proceed.
Meet the team or request an appointment with Team Super Financial Advice.
^ Source: Bloomberg (S&P/ASX200 Total Return Index: 23 March 2020 – 22 March 2021)