As long as we’ve had share markets, we’ve had share market volatility. Share markets operate on a supply and demand model, so if there are more investors wanting to sell shares instead of buying them, markets will go down. If there are more buyers than sellers, markets will go up. This is one of the fundamental principles of investing – and it’s what makes markets unpredictable.
However, every now and again an event will occur that will have a more substantial impact on markets than these daily fluctuations. Here are some examples:
These types of events tend to impact business and consumer confidence, which can lead to more investors selling shares instead of buying them. This can create a market downturn that could stretch for days, weeks or even months.
The Australian market will be impacted by events, particularly economic activity, in the major economies of the world.
History has shown us that even though share markets fluctuate regularly, the general trend is always upwards over the long term. For example, the S&P/ASX 300 Accumulation Index, which tracks the performance of the largest 300 companies on the Australian stock market, increased from 4,052 on 30 December 2011 (the last trading day of that year) to 7,453 on 31 December 2021, despite a lot of bumps along the way. When you add in the return of dividends paid over that period, that’s a total return of 184%. 1
In other words, if you had invested $10,000 in the S&P/ASX 300 on 30 December 2011, it would have been worth $18,393 on 31 December 2021. You would have also received a healthy flow of dividends along the way.
S&P/ASX 300 Accumulation Index market price over 20 years
Past performance is no indication of future performance.
Market downturns are inevitable, but they usually have periods of strong returns in between. Keep in mind that even if the immediate outlook for markets doesn’t look promising, it’s likely that they’ll pick up again at some point in the future.
That’s why, when it comes to your super, it’s important to take a long-term view. Your balance will likely go up and down over the short term in line with market movements, but if you stay invested your balance will generally increase over the long term.
Another reason to keep your super invested, even during periods of volatility, is because there’s no simple way of predicting when or what the next change will be.
While it can be tempting to sell up or switch your super into different types of investments during a market downturn, it’s a risky strategy that may impact long-term performance. This is because you may end up buying back the same shares at a higher price once the market picks up again.
However, everyone has different financial goals and timeframes. Your stage of life, in particular, can make a big difference to your investment strategy, because you may not feel comfortable experiencing market volatility if you’re approaching retirement or already retired.
That’s why we recommend speaking with a financial adviser if you’re concerned about market movements. They know how to deal with market volatility and can calculate the potential risks to your super to make sure you’re still on track to reach your long-term goals.
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.
1 ASX Market Index, https://www.marketindex.com.au/asx300. Data accessed 4 February 2022.
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.