Rising talks of a recession, interest rates barrelling towards negative territory and tumbling stock markets have given people plenty of reason to worry.
However, letting the negative data panic you is the worst thing you can do, and there are still many reasons to be cheerful.
Most Australians’ primary exposure to the stock exchange is through their super funds, which saw returns grow on average 1.4 per cent through July.
For the rocky days since August began, growth funds are down 2.2 per cent, but after factoring in July’s positive returns that reduction shrinks to only 0.8 per cent.
Chant West researcher Mano Mohankumar says the current market shakeout wasn’t unexpected, as “there are always ups and down in markets”.
However, the performance of super has demonstrated how it protects members from short term fluctuations.
“Growth fund performance isn’t dependent on share markets alone,” Mr Mohankumar said.
Typically growth funds average about 55 per cent invested in shares and listed property, with the rest in a combination of unlisted infrastructure, property, and defensive assets like cash and bonds.
“So while Australian shares and hedged international shares are down 5.5 per cent and 4.7 per cent respectively in August so far, we estimate that the median growth fund is only down 2.2 per cent,” Mr Mohankumar said.
Returns powering along over long term
A couple of tough weeks on the sharemarket are only a tiny blip over the longer term.
“Over 10 years growth funds have averaged a return of 8.4 per cent a year which is better than expected when the system was founded,” Mr Mohankumar said.
“There’s no need to panic and you shouldn’t make decisions based on short term factors. Older people who are closer to retirement are more affected by short term market changes but they are usually in more conservative options.”
The table above demonstrates the influence of choosing a more conservative option that has a higher exposure to defensive assets. While the growth option has fallen 2.2 per cent in August, the conservative option is only down 0.4 per cent.
Stick to your guns
Even if you’re directly exposed to the stock market the August falls are not a disaster.
The All Ordinaries Index is down 6.7 per cent from its July 30 high of 6920 points but it is still 12 per cent up on six months ago, about even with a year ago and 24.5 per cent up on the February 2016 low.
“If you have a long term strategy its best to hold your course. If you jump in and out of the market it leaves you much worse off,” said Amanda Cassar, adviser with Wealth Planning Partners. “People sell out and don’t get back in at the right time; they stay out of the market for far too long.”
“And if you do sell out now where do you go? Interest rates are so low and there are probably going to be further rate cuts in the US.Term deposits are probably just paying you the rate of inflation.”
However if you do feel you need to act get advice first. “If you are very concerned and very highly exposed to growth assets then get some professional advice before doing anything,” she said.