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Article Date: August 1, 2008
What’s Happened?
There has been a significant amount of coverage in the media over recent months in relation to sub-prime mortgage market concerns in the US and recent moves by the Reserve Bank and most Australian financial institutions to increase interest rates. These economic conditions have made investors jumpy and created the most volatile investment conditions that we have seen for many years.
This uncertainty is played out in the listed stock markets. The Australian markets have been through major swings up and down over the last six months, reaching an all time high on
1 November 2007, and falling by 13.7% over the financial year. The unhedged international share market fell by 21.3% for the year.
Investing in the Stock Market
The stock market can be a very emotional place to invest, which can often lead to over selling or over buying. Over a large period of time these “cycles” become evident:
- October 1987 saw a significant loss on the Australian and world stock markets;
- 1999 saw huge growth in markets on the back of the “tech boom”;
- 2002 and 2003 saw an unwinding of the tech boom; and
- The financial years ended 30 June 2004 through to 30 June 2007 saw very strong returns on the Australian share markets.
We are now giving back some of these recent gains.
Things to Remember
History shows that the stock markets rise and fall, sometimes dramatically. It is very important not to become emotional when investing. For example, those investors that stayed fully invested during the stock market crash of 1987 recovered all funds that were lost and benefited from the subsequent recovery, whilst those that sold out got none of the recovery.
What does this mean for your Super?
As a super investor you generally can’t access your money until you are 55 or older. This means you should stay focused on long term returns.
It is also important to remember:
- Volatility is something that is expected on the share market;
- We have just had four consecutive years of very strong returns.
- History shows that markets tend to over estimate the real impact of information;
- If you can wait out the downturn, history shows that you will recover these losses in the long term;
- History also shows that in the long term markets recover, we just don’t know how long that will take.
Nearing Retirement?
Such large adverse movements in the market are not what you need if you are nearing retirement. Cashing out your benefits now may not be the best thing to do. There are other alternatives, such as converting your benefits into an allocated pension.
Rather than cashing your benefit out now, it may be better to remain fully invested, and transfer your benefit to an allocated pension. By so doing you allow your funds to remain fully invested, and benefit from future recoveries in the share market. If you are considering any such change it is important to seek independent financial advice.
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