It’s all about time in the market, not timing the market

Volatile domestic and international sharemarkets have been big news throughout the year and super funds have not been immune to the volatility. If you have an Accumulation or QSuper Pension account you are probably seeing a negative return on your statement for the first time in several years. But what does it really mean for your super in the long term?

Seeing negative returns for your super can be upsetting, but it’s important not to panic. For many people the knee-jerk reaction might be to withdraw funds, or switch to a lower risk investment option. However, super is a long-term investment, and attempts to choose the best investment for short-term results are rarely successful.

Recent years have seen healthy returns for super funds, but as the saying goes, what goes up must come down. Pulling out of your investment when the markets are falling may be to your disadvantage, especially if you bought when the price was high. It isn’t unusual for investments in shares to occasionally see negative returns. The fact is the sharemarket is not predictable. Therefore, it is very important to step back and look at the bigger picture.

The unpredictability of market returns

The graph below shows historical events, such as world wars, recessions, and sharemarket crashes, that have affected the Australian sharemarket in the past – and each time the market has recovered and continued to grow steadily.

The catastrophic events of September 11, for example, caused a sharp drop in the market, but it wasn’t long before the value of investments began to rise again. This was probably the most significant dip over the last decade, but there have been plenty of others.

More recently, the United States’ sub prime crisis has sent shockwaves through markets around the world. The result was lenders being less willing to lend, and interest rates rising sharply to cover perceived risks and to curb overspending.

Overall, however, the results have been overwhelmingly positive.

Long-term results count in super

The short-term losses may seem worrying, but it’s important not to panic. When it comes to your super, it’s the long-term results that count.