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The period to 30 June 2022 has been a year of ups and downs across investment markets. This is a normal part of investing and we are reminded that, at times, the returns supporting your super balance can go down.

Understandably this can cause some distress to members after all, it’s not a common event. It’s been 13 years since Mercy Super members last saw a negative annual 30 June return, that was at the height of the Global Financial Crisis.

It’s not surprising that you may be concerned about the impact this may have on your investments, including your super. To help, the following may provide some answers to questions you may have.

A reminder: How is my super invested?

Super is a system for saving for your retirement. Your employer pays an amount of money into a super account for you on top of the wage or salary you receive. You can also choose to pay money into your super account yourself.

Unlike a bank account where your money is held by your bank in return for a set amount of interest, Mercy Super invests your money with a focus on adding value through long-term earnings. The amount added through investment returns depends on how successful those investments are.

Mercy Super invests your super, along with the super of all our members, in the share market and in fixed income (like term deposits) as well as areas like property (buildings, warehouses, shopping centres – not houses), infrastructure (airports, toll roads, windfarms etc.) and private equity (ownership of companies). We also hold some of your money in cash.

Spreading your money across these types of investments (known as diversification) spreads the risk and reward. Click here to learn more.

Diversification lowers the overall risk because different types of investments do well at different times. It is the best defence against a single investment failing or one investment type performing poorly (such as now with the share market and bond markets falling). Diversification lowers the risk because, no matter what the economy does, some investments are likely to go up when others go down.

The balance of your super changes both because of money being paid in by you and your employer and because of the investment returns your super is earning.

Events impacting performance in the last 12 months

Over the past year a range of events have affected the economy and investment markets making them more volatile. Up until the end of 2021 investment markets benefited from the strong economic recovery following the COVID-19 downturn.

However, since the beginning of 2022, investment markets have been far more challenging. More recently, pent-up demand from consumers, supply chain blockages, the war in Ukraine and rising energy costs have all contributed to increasing inflation across the globe which has required central banks to respond through rising interest rates.

Investors are becoming more cautious about the impact this has on consumer spending and business profitability. This has resulted in a fall in investment markets, impacting super balances.

The importance of taking a long-term view on your investments

Over history, dating back hundreds of years, markets have generally experienced “corrections” after long periods of sustained growth. As the term implies, if values grow too strongly, they need to be adjusted or corrected to what is called a “fair value”. So, market corrections are normal.

We can be confident that markets will rebound. Through history share markets, for example, have always recovered their losses. Always. The chart below shows the Australian share market over the last 37 years as an example.

Source: S&P ASX, Frontier Advisors

Predicting when markets will recover is difficult, actually impossible, to do in advance. But what history has shown us is that market downturns do come to an end eventually, and rebounds can happen quickly. Waiting for that recovery to start before moving back into shares could mean missing the largest part of the upswing.

What should I do to protect my super?

Everyone’s situation is different so each of us has a different answer to that question. For most people who are not likely to access their super for many years the best thing to do is to decide to do nothing. That might sound like you are ignoring the problem because at a time like this many of us feel like we need to take action. But when investment markets fall people often lose more money by making decisions at the wrong time.

Investment markets always have periods where values go up and down. Throughout history investment markets have always recovered and risen to levels higher than before these periods of loss. Individual companies or investments do not always recover, but the overall share markets or property markets etc. do.

So, switching your super money between investments now to try and avoid losing more might mean you miss out on the gains when those investments bounce-back and rise in value. This chart shows what would have happened to a sample Mercy Super member’s super following different decisions they might have made during the GFC:

  • Remaining in the default MySuper Balanced option
  • Switching to Cash then back to My Super Balanced after one year
  • Switching to Cash and then back to MySuper Balanced after two years
  • Switching to and remaining in Cash.

Changing their investments away from more volatile investments, like shares, after the value had already gone down and missing the benefit of that value going back up has cost thousands of dollars which can never be recovered.

Impact of switching during the GFC

Source: Frontier Advisors, SuperRatings. The analysis is based on the returns during and after the GFC and assumes an average member with a starting balance of $50,000 and SG contributions invested in the median balanced/cash fund.

Source: Frontier Advisors, SuperRatings. The analysis is based on the returns during and after the GFC and assumes an average member with a starting balance of $50,000 and SG contributions invested in the median balanced/cash fund.

What is Mercy Super doing at the moment?

Mercy Super works with a team of investment professionals, with many years of experience. Each day they are looking at various economic and market activities and their impact on your investments.

Like our members, the best thing at the moment is for us to stick to our investment strategy. However, as different individual investments will react and recover differently, there are opportunities to protect some further losses and to make some gains in the future. This requires a lot of information, experience and skill. That is why we leave it to the experts!

Working with fund managers and our asset consultants (Frontier Advisors), Mercy Super has literally thousands of investment specialists around the globe researching and analysing markets. Picking through this information provides the chance for us to make some decisions to improve outcomes for our members.

This is not unusual. Mercy Super, and our advisers, are always looking to manage the risks of our members’ investments and to find new opportunities.

 

Need help? Let’s have a chat

In summary, because your super is a long-term investment it is important to focus on the long-term performance and not pay too much attention to movements, either up or down, over a few days or even weeks. After all, market volatility is normal, and for most people who are not likely to access their super for many years you will experience many market ups and downs.

However, everyone’s situation is different. If you think now is the right time to look at your investment strategy, get in touch. We can guide you through our range of investment options and our in-house financial advisers can help you identify your own personal investment strategy matched to your circumstances and long-term goals. This service is provided as part of the administration fee so there is no additional cost to you.