Short-term pain, long-term gain
The last 12 months have been a period of economic, political and financial uncertainty. Lingering impacts from the Covid pandemic, the war in Ukraine, the global energy crisis and rising inflation and interest rates in most major economies have led to sharp corrections in equity markets. Central banks have been aggressively raising interest rates meaning that bonds, a traditionally lower risk asset class, have also performed very poorly. Energy and wage price pressures will continue to exaggerate the impact of supply chain disruptions on global inflation with the risk of recessionary conditions across the western economies. However, against this background of ongoing short term uncertainty, it is important to remember that, that superannuation is a long-term strategy to help fund your retirement over an extended investment horizon.
Members should expect four negative investment return years over any given twenty-year period. The last negative investment return year was during the COVID 19 recession. For the 12 months to 30 June 2022, our Balanced (MySuper) investment option had a net investment return of -5.36%. The Balanced investment option invests mainly in growth assets with some interest-bearing defensive assets. It has the potential for high returns – this was demonstrated by the investment option returning a net investment return of 20.0% for the 12 months ending 30 June 2021 – due to the significant proportion of growth assets. Investment returns will vary and are in some years expected to be low or negative, although to a lesser degree than the Growth investment option.
It is important to remember that the core fundamentals of superannuation remain the same – long-term real growth and this reinforces the need to focus on the long-term investment strategy and objectives. REI Super continues to provide members with strong, long term investment returns with the Balanced investment option achieving average net investment returns of 7.38% per annum over 10 years.
It is important during turbulent market conditions like this, to keep focused on long-term investment objectives. As the COVID pandemic has shown us, markets can fluctuate and reacting to short-term market movements could have a negative impact on your long-term retirement savings.
Seek professional advice before switching
Changing investment strategies during a downturn can prove risky. Research1 has shown that investors who attempt to ‘time the markets’ by frequently switching investments generally perform badly over the longer term. During the last major market decline – the Global Financial Crisis (GFC) – Industry Super Australia found that members who moved their money from an average balanced industry fund into cash were:
- $4,000 worse off after three months,
- $13,800 worse off after a year,
- $34,800 worse off after five years,
- after seven years would have lost a very substantial $46,000 of potential retirement savings.
If you are considering changing your investment strategy, make sure you speak to a licensed or appropriately authorised financial advisor before you act.
REI Super members have access to professional and cost-effective advice as part of their membership, so call the Member Helpline on 1300 13 44 33 if you need to discuss the investment strategies that are appropriate for you.
What investment option should I be in?
Before reviewing and changing your investments, you should see how much risk you can tolerate. Why? It’s important to understand what level of risk you’re comfortable with. Understanding your risk profile will help you with planning your investment strategy and assist you with your financial goals.
We are here to help
Now that you have an idea of your risk profile and how much you need to save for retirement, call our member services helpline to help choose the right investments for you. Our advice on contributions, investments and insurance within your REI Super account is free. There are fixed fees to set up a transition to retirement strategy, a review of your investments or to obtain comprehensive advice. Call us today 1300 13 44 33.
1 Industry SuperFunds
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Future investment performance can vary from past performance, and you should not base your decision to invest in REI Super simply on past performance. Past earning rates are not an indicator of future earning rates. The investment returns of REI Super are not guaranteed, and the value of the investment may rise or fall.
The information contained in this article does not constitute financial product advice. REI Super does not give any warranty to the accuracy, completeness or currency of the information provided. Although REI Super makes every reasonable effort to maintain current and accurate information, you should be aware that there is still the possibility of inadvertent errors and technical inaccuracies. REI Superannuation Fund Pty Ltd ABN 68 056 044 770, AFSL 240569, RSE L0000314 Trustee of REI Super (ABN 76 641 658 449), SPIN REI0001AU, RSE R1000412. MySuper unique identifier 76641658449129. July 2022.