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Riding the highs and lows of investing
The scale of the share market decline over recent weeks means that many members with accumulation accounts are seeing their account balance decline. For many this will be an unsettling time.
Periods of volatility are inherent in the market. Historically, investment markets nearly always react to major political, military and economic events. In this instance, the current credit crisis in the United States and the fears it will lead to a recession are driving investor fear.
Uncertainty about the future triggers a flight to more secure forms of investment resulting in a drop in share markets. However, this tends to be a short-term response and as investors re-enter the market a recovery generally occurs over the medium to long term.
The current falls, although significant, should be viewed in context of the substantial returns markets have generated over the past few years. The Australian share market (as measured by the ASX 300 Accumulation Index) has risen by in excess of 20% in each of the past four years. This has provided unprecedented returns for members as shown in the following table.
Crediting rates for UniSuper for the year ending 30 June 2007
| Investment option | Year ending 30 June 2007 % |
5 years ending 30 June 2007 % |
| Cash | 6.11 | 5.14 |
| Capital Stable | 8.49 | n.a. |
| Conservative Balanced | 11.67 | 9.68 |
| Balanced | 14.92 | 11.79 |
| Socially Responsible Balanced | Only started 1 January 2008 | |
| Growth | 17.45 | 13.46 |
| Socially Responsible Shares | 17.78 | n.a. |
| Shares | 20.91 | 14.37 |
(Capital Stable and Socially Responsible Shares only started in 2003, therefore 5-year returns are not available)
Take a long-term view
Investment market volatility is normal and decreases are usually followed by a recovery and growth cycle. Market uncertainty in July and August last year dominated news broadcasts at the time and no doubt sparked concern for some. But by November, the Australian share market had reached an all time high.
Some professional investors in fact consider a fall in the market to be an ideal opportunity to buy more shares, knowing that the values will rise again.
The key message is not to over-react to negative returns in a single year. Your superannuation investment is based on a long-term strategy and it’s why investment objectives are measured over five or 10-year periods.
A growth option will experience negative returns from time to time, but these types of investments are designed to provide a larger return than a more conservative option over your lifetime.
A few hints
- Market volatility is normal.
- Super is a long-term investment.
- Do not over-react. Keep sight of your long-term goals.
- Even when most members retire they will still be investing for the medium to long-term.
UniSuper's approach
UniSuper will continue to manage your investments in a manner that anticipates occasional periods of negative returns, as this remains the only practical way to deliver strong positive results over the long-term. UniSuper will monitor the markets to ensure that investment objectives continue to be met.
Close to retirement or already retired?If you've budgeted for a particular retirement income or have marked your super for a particular purpose, you may be tempted to 'cut your losses' and move to a more conservative option. Remember though, if you do this you may not be in a position to make up ground with any future market rises. Depending on your personal circumstances, it may be better to continue with a long-term strategy and only change as a result of permanent and sustained changes to your situation, rather than try to predict the market and constantly adjust your strategy according to its movements. Even if you have retired you may still be investing for the medium to long-term. For example a 55 year old can probably expect to be investing for another 30 years. This is long enough to ride the ups and downs of the market. Whatever action you are considering, we strongly suggest you first consult an independent financial planner or investment adviser, who will take your own situation and goals into consideration and help guide you on the most appropriate course of action. |
For more information
For more information about risk and return and UniSuper's investment options, please read the booklet Investing for the future.
This is general information only and is not intended to be advice. It has been prepared without taking account of your objectives, financial situation or needs. You should seek advice from a licensed adviser before making any financial or investment decisions. Issued by: UniSuper Management Pty Ltd (ABN 91 006 961 799), Australian Financial Services Licence No. 235907, Level 37, 385 Bourke Street, Melbourne, Vic 3000. Phone 1800 331 685
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