As investment market volatility continues, what does this mean for Australians’ retirement savings?

The COVID-19 (coronavirus) crisis has caused uncertainty in many areas of life, not least on investment markets. Share prices have been fluctuating wildly as investors react to unfolding global events.

From its high point in March the Australian All Ordinaries Index shed more than a third of its value before recovering some ground towards the end of June1.

And just as concerning have been the day-to-day swings. The coronavirus pandemic has created the largest daily fluctuations since the Great Depression, with the US S&P 500 Index experiencing an average daily change of 4.8% in the five weeks to 8 April 20202 —higher than both the GFC and the 1987 share market crash.
 


Why this could affect your super

You may not think of yourself as an investor in stocks and shares. But most Australian super accounts are invested in shares to some degree because of their potential to deliver strong long-term gains. So share price ups and downs are still likely to affect your finances, and many people’s super balances have taken a hit as a result of the volatility.

Many working Australians have their super in a balanced option, where your super is spread across a mix of investments - from ‘growth’ assets like shares and property, which can deliver higher potential long-term returns but with higher risk, to ‘defensive’ assets such as bonds and infrastructure, which can potentially provide some level of protection against share market downturns.

So, the good news is your super may not have been quite as affected by the COVID-19 volatility as the headline share price numbers you see in the media.

But it’s important to check with your super provider exactly how your retirement savings are being invested. Different super funds define ‘balanced’ in different ways and it’s possible up to 80% of your retirement savings could be invested in growth assets such as shares, even in a balanced fund.

When will your super bounce back?

We can’t be sure. Market movements are difficult to predict, even for experienced investors and economists.

AMP Capital Chief Economist Shane Oliver says, “Short-term sometimes violent swings in share markets are a fact of life but the longer the time horizon, the greater the chance your investments will meet their goals.

“So, in investing, time is on your side and it’s best to invest for the long term when you can.”3

Should you think about switching your investment mix?

It’s tempting to react to short-term market movements by changing your investment strategy. But it could be worth bearing in mind that if you sell out of shares when prices are low you may end up crystallising your losses and missing out on any future upturns.

As Shane Oliver says, “We’ve seen recently growth assets like shares have periods of bad short-term performance versus bonds and cash. But they provide superior long-term returns, which is essential to grow retirement savings. It makes sense for superannuation to have a high exposure to them.

“The best approach is to simply recognise that super and investing in shares is a long-term investment.”4

What’s lifecycle investing?

One option to consider could be a lifecycle investment strategy. This is where your super investment mix is automatically adjusted as you get older to reflect your changing tolerance for risk - from when you’re just starting out with plenty of years ahead of you in the workforce to when you’re approaching retirement and you have less time to play catch-up after a downturn.

Here’s Adam Spencer explaining just how lifecycle investing works.

Some ways we can help

If you're concerned about the impact of COVID-19 on your super investments, check out our practical ways to weather market volatility and stay focused on your long-term goals or visit our dedicated COVID-19 help hub.

If you’re closer to retirement it can be more difficult to think long term as you may have less time to make up any losses before you stop earning a regular income. Here’s some advice on how to weather the COVID-19 storm from AMP Capital Head of Retirement Solutions Darren Beesley.

It could also be a good idea to speak to a financial adviser, who can provide you with quality financial advice based on your current situation and future needs. If you don't have an adviser, we can put you in touch with one.

If you’re invested with AMP and you decide a switch is best for you, you can change your investment mix through My AMP at amp.com.au.

Once you log into My AMP, you'll be on the Overview screen. You'll find ‘Change Investment Mix’ in the ‘I want to' menu on the right hand side of this page. You'll also find it in the menu on your Superannuation overview and Product overview pages.How to make an investment switch


1https://www.amp.com.au/insights/grow-my-wealth/shares-climb-a-wall-of-worry-but-is-it-sustainable
2https://www.marketwatch.com/story/stock-market-investors-have-to-go-back-to-1929-to-find-daily-swings-this-wild-2020-04-07
3https://www.amp.com.au/insights/grow-my-wealth/olivers-insights/five-charts-on-investing-to-keep-in-mind-in-rough-times-like-these
4https://www.amp.com.au/insights/grow-my-wealth/why-super-and-growth-assets-like-shares-have-to-be-seen-as-long-term-investments

Talk to an advisor about your financial needs

Important information

This information is provided by AWM Services Pty Ltd (ABN 15 139 353 496), is general in nature only and hasn’t taken your circumstances into account. Before deciding what’s right for you, it’s important to consider your particular circumstances and read the relevant product disclosure statement or terms and conditions available from AMP at amp.com.au or by calling 131 267.

Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive relating to products and services provided to you. All information on this website is subject to change without notice. AWM Services is a part of AMP group.