Market volatility has emerged as a prominent issue for the stock, property, and bond markets this year as a result of an unusual number of global events. Inflation has become a serious problem as worldwide prices for goods and services grow, particularly for energy and food. Furthermore, Russia’s terrible invasion of Ukraine has increased inflationary pressures and undermined global supply networks. To stop prices from going up, central banks around the world have started to raise interest rates. This is meant to stop people from spending and borrowing money, which should lower prices.
Global manufacturing and supply chains that following superannuation advice have also been put under strain due to shortages of essential materials required in production, as well as increasing transportation costs, which have resulted in higher pricing for people.
COVID-19 has continued to cause havoc, particularly in China, where some of its major cities were held under lockdown for months while the world’s second largest economy pursued its COVID-zero strategy. Locally, significant rain and flooding in early 2022 disrupted supply networks, adding to already high costs.
The effect on investment markets
As suggested by superannuation advisors, it’s hard to know how recent events will affect the global economy, it’s hard to figure out how share prices, home prices, and bond yields will change.
Share prices have declined in the majority of developed markets. Market uncertainty has also hit traditionally “safe” bond markets. For the first time in more than 30 years, we saw negative bond returns during the previous 12 months.
This is because bond prices decline when interest rates rise. Consider two bond purchases: one made in the present, higher interest rate environment, and the other made a year ago, when interest rates were lower. Bonds bought when interest rates were low are less appealing now that investors can get bonds with higher yields. Since there are only a few weeks left until the end of the fiscal year, it seems unlikely that the bond, property, and stock markets will experience a sudden rise in value that is big enough to make up for recent losses.
The Impact on Super Returns?
Our retirement funds are all invested in a variety of asset classes, including stocks, real estate, and bonds. Younger members (those with several years till retirement) often have a significant proportion of their super invested in growth assets like shares and property. Members who are getting close to retirement age have less money in the stock market and more in bonds, cash, and other safe assets.
Impact on Your Retirement Savings?
Due to how much the stock, property, and bond markets have dropped recently, many super fund members are likely to get less money back this fiscal year. While super fund returns aren’t looking good this fiscal year, our advice at this time, and throughout any market volatility, is to be cool and don’t panic, and remember that the goal of superannuation is to invest for the long term. You can contact a financial advisor or superannuation advisor at Omura Wealth Adviser to get a professional recommendation on your specific case.
It is critical to view things in context.
- Because super is a long-term investment, while investment markets might be volatile in the near term, they normally rebound in the long run.
- In the previous 29 years, the average growth-style super fund has only completed the fiscal year in negative territory four times, and there has been a solid run of gains averaging 8.4% per year for the past decade.
Because your company pays regular super guarantee contributions into your account, you’re probably already benefiting from an investment idea known as “dollar cost averaging,” which means you buy more of an asset when prices are low and less when prices are high.
If you need help understanding what’s going on in the investing markets and how it affects your super, please contact us or chat with your financial adviser, if you have one.
Personal Net Rate of Return?
As a superannuation advisor in Australia, we advices that it is important to keep an eye on how your investments are doing, but it is also smart to keep an eye on how your personal super account is doing. While the performance numbers that are published are based on the investments you choose, your net rate of return is based on the size and timing of your transactions.
Simply put, your personal net rate of return is the amount by which your individual super account increased or decreased during the reporting period due to investment profits, contributions (either from your employer or from yourself), and withdrawals (e.g., insurance premiums, fees, rollovers, and benefit payments).
Because market fluctuations affect the magnitude and timing of your transactions, they will have an influence on your personal net rate of return. Consider someone who donated $5,000, someone who contributed $25,000, and someone who withdrew $10,000; these may have happened at various periods of the year and on days when market values were higher or lower. This implies that your return is ‘dollar weighted,’ and the timing of returns is determined by the timing of activity in your account, which is why your personal rate of return frequently differs from the advertised performance of the investment option(s) in which you’re invested.
Why aren’t all retirement funds required to show the net rates of return for each member?
Other super funds may not disclose a member’s individual or personal net rate of return and may instead give investment profits on your statement.
We do this at Omura to provide you with complete transparency of the return on your money depending on the activity in your account, which is unique to you. This gives you a better understanding of how your account transaction behavior affects your taxable performance.
What should you check for if the results differ?
If your personal net rate of return differs from the advertised performance return of your investment option(s), consider the following while reviewing your Annual Super Statement for the applicable fiscal year:
- Have any transactions been executed on your account, and when did they occur? Your returns could be affected by how much you use your account and when you use it.
- How long have you been involved with the investment option(s)? The length of time you’ve had your account open will influence your results.
- Remember that time is money in the market, not money in the market. Regular contributions (such as Super Guarantee) enable your super to buy more units when prices are low and fewer units when prices are high, effectively averaging the cost of your investment.
Contact a financial advisor or superannuation advisor at Omura Wealth Adviser to get a professional recommendation on your specific case.