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Share markets and super: How do investors approach market volatility?

Have you ever heard the saying, "Be fearful when others are greedy, and greedy when others are fearful”? Investment managers and professional investors look at market downturns differently to most people – and there are some important lessons we can learn from them.

Your super is managed by highly skilled investment specialists with extensive management and performance history. Their role is to buy and sell your super fund’s underlying investments with the aim of meeting the fund’s investment objectives and generating returns. 

Investment managers and professional investors tend to approach market volatility and share market downturns the opposite way to everyone else. While others might panic and want to get their super out of the share market if the market falls, investors know that downturns can actually present significant opportunities.

They approach investing with a specific mindset that helps them stay on course during periods of market volatility and make considered, strategic investment decisions that can pay off in the long term. Here are some of the lessons we can learn from them.

Price vs value

When markets are driven lower by negative sentiment, shares can potentially fall below their actual value. These conditions then provide investors and investment managers with valuable opportunities to temporarily buy shares at a discount. 

The value of an individual share is the sum of the returns it can potentially generate over the company’s lifetime. So, while short-term shockwaves – such as recessions, pandemics or political events – can affect the share price and immediate return of an asset, they won’t necessarily impact its overall worth.

Investment managers work hard to identify undervalued assets and take advantage of market dips. This can put your super in a great position when markets recover and the share prices of these undervalued shares move closer to their actual value. 

However, remember that they can’t work outside your investment strategy. For example, if you have a conservative investment strategy with a high allocation to fixed interest and cash, they won’t sell all your investments and buy high-risk shares to try capture market gains. 

Consistent behaviour tends to get the best results

Even the most seasoned investor knows how difficult it is to time the market. Rather than try to predict future movements, investors know it helps to adopt a measured approach by investing regularly over months and years – regardless of how the market is performing. 

You can use the same approach with your super. If you continue to make regular contributions to your super when markets fall, you’ll be able to buy a larger number of shares for the same amount you usually invest. 

It can also help to diversify your investments by including defensive assets in your portfolio, such as fixed interest investments and cash. These assets tend to be less dependent on market cycles, so they can provide stable returns through periods of volatility.

Keep sight of the bigger picture

Investment managers and investors know that a long-term investment strategy will ride out any market fluctuations. That’s why they look long term rather than short term when making investment decisions.  Despite periods of short-term volatility, the trend in share markets is generally upwards – with shares typically delivering higher returns over longer periods.

One of the best things about super is that it’s an extremely long-term investment. So even though markets – and your super balance – will go up and down, if you have a well-diversified portfolio and you give your portfolio the chance to recover from any short-term volatility, then you should see positive returns over the long term.

Of course, keeping sight of the bigger picture can also mean looking at your portfolio as a whole – including your investment strategy and how it may need to change over time to reflect your stage of life and financial goals. A financial adviser can tailor your investment strategy to help you make the most of market movements. They can also ensure your portfolio is robust and diversified to offer protection against the impacts of market volatility.

We’re here to help

If you’d like to talk to someone about your financial goals, you can use our online tool to connect with a financial adviser near you.

The Colonial First State Investments team is working hard to make sure you have the support you need. We will continue to monitor markets, share regular market updates, and communicate closely with our network of experienced investment managers.

As you keep your long-term goals top of mind, remember: our team is here to help – with news, insights and helpful resources available on our website to help keep you up-to-date.

Disclaimer

This document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL). The information, opinions, and commentary contained in this document have been sourced from Global Markets Research, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 (CBA). Global Markets Research has given CFSIL its permission to reproduce its information, opinions, and commentary contained in this document and for CFSIL to authorise third parties to reproduce this document. This document has been prepared for general information purposes only and is intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of CFSIL at the time of writing and may change over time. This document does not constitute an offer, invitation, investment recommendation or inducement to acquire, hold, vary, or dispose of any financial products. CFSIL is a wholly owned subsidiary of CBA. CFSIL is the issuer of super, pension and investment products. CBA and its subsidiaries do not guarantee the performance of CFSIL products or the repayment of capital for investments. This document may include general advice but does not take into account your individual objectives, financial situation or needs. The Target Market Determinations (TMD) for our financial products can be found at www.cfs.com.au/tmd and include a description of who a financial product is appropriate for. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from www.cfs.com.au or by calling us on 13 13 36. Past performance is no indication of future performance. Stocks mentioned are for illustrative purposes only and are not recommendations to you to buy sell or hold these stocks. This document cannot be used or copied in whole or part without CFSIL’s express written consent.