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How to ride out the impact of Coronavirus

At VicSuper, we take a long-term view of markets. This, along with our diversified approach, helps to reduce market volatility and provide competitive returns for our members.

Find out more about our teams, services and financial support in light of COVID-19.

What you need to know

  • The recent share market volatility has been driven by uncertainty about the impact of Coronavirus disease.
  • Super is a long-term investment and can experience bouts of share market volatility. Diversification is important in helping to reduce the bumps in the market.
  • It may be tempting to switch your investment into cash. But cash does not usually rise in value over time, income is low, and timing the markets can lock in short-term losses and lead to missing out on long-term gains.
  • At VicSuper, we remain focused on managing your super for the long term and ensuring that your super savings are well-diversified to weather the current—and future—share market volatility.

Why are financial markets so volatile right now?

We’ve certainly seen big swings in markets in the last few weeks. This has been driven by uncertainty about the impact of Coronavirus disease, also known as COVID-19, and uncertainty with respect to oil prices. COVID-19 was declared a pandemic by the World Health Organisation on 11 March 2020.

Growing concerns about the global impact of COVID-19 have led to volatility and declines in equity markets since mid-February. Other markets have gone up, notably bond markets (lower yields/higher prices) as they are perceived as ‘safe haven’ investments.

What should I do about my super in times like these?

While it’s normal to be nervous about your retirement savings—particularly after 10 years of consistent growth—it’s important to stay focused on the long term nature of superannuation. Your super is a long-term investment which over time can experience bouts of market volatility, as we’ve seen recently.

It’s just as important to understand that your super investment is well-diversified to help reduce the bumps in the market and help deliver more resilient returns for your super savings.

Note that a 20% fall in share markets does not automatically translate to a 20% fall in your super. This is because your super is well-diversified. For most diversified options, your super is invested across a range of different asset classes such as bonds, real assets (like infrastructure and property), and cash. Diversification has helped dampen the volatility of returns because some of our investments have gone up while equity markets have gone down.

Should I switch my investment into cash?

We understand that it can be tempting to switch your investments to cash options in volatile times.

While cash has the lowest market risk and potential for loss, and can protect against negative returns, it does not usually increase in value over time. Also, given today’s very low interest rate environment, the level of returns from cash is also low.

This leaves cash susceptible to inflation risk. In other words, the return on your investment may be lower than the rate of inflation. This means that the purchasing power of your money may not actually be growing, which is an important consideration for your retirement savings.

This highlights the long-term risk associated with investing in cash, even in retirement. Investing over longer periods (10 years or more) means that your investments will probably have time to ride out short-term ups and downs, and keeping up with inflation is one of your main risks.

I’m really concerned about Coronavirus-driven equity volatility. Should I switch into another investment option?

Switching to a more conservative investment option (like cash) after a market fall can lock in losses and may mean you miss out on any rebound that occurs.

For example: The market falls that resulted from the October 1987 crash, the bursting of the tech bubble in 2001, the September 11 terrorist attacks and even the 2008 global financial crisis, were all followed by a strong bounce-back within a relatively short timeframe.

Markets are inherently unpredictable and trying to time them means you must get two important decisions right—when to get out and when to get back in. There is a risk of having to pay a higher price to get back into the market, as well as missing out on the growth from any market recovery.

Diversification remains the best possible response to heightened uncertainty.
This remains a hallmark of our investment strategy since it offers the best chance of achieving relatively resilient outcomes.

Key investment considerations

  • Industry Super Australia data shows that members who moved their money from an average balanced industry fund into cash after the global financial crisis were $4000 worse off after three months and $34,800 worse off after five years.
  • It’s also worth thinking about property in times of volatility—people avoid selling their house during a property market slump because they’re worried about making a loss. This same principle should be applied to changing your super fund or investment option immediately after a market drop.

What is VicSuper doing about your super investment in the current share market volatility?

While we’re closely monitoring the current share market volatility, we remain focused on managing your super over the long term and ensuring that our investment portfolios are well-diversified to weather the current market volatility.

Most of our multi-asset investment options were well-diversified and defensively positioned coming into this latest period of equity volatility. Our team has done a lot of work preparing investment portfolios for more uncertain times and continues to monitor portfolios on a daily basis so as to ensure they are well placed to respond to market fluctuations.

Investing your super in volatile times

We are confident that our disciplined, risk-aware, and long-term approach to investment remains appropriate for the market conditions ahead, and is also consistent with our objective of delivering competitive returns for our members over the long-term.

  • Our FutureSaver Growth (MySuper) investment option is a top 10 performing investment option over the FYTD, 1 year, 3 year, 7 year and 10 year time periods in the latest SuperRatings SR50 MySuper index1.
  • This is a great outcome for our members and shows the success of our investment approach.

Find out more information about our advice services.

You can also read our Half Year Investment Update to December 2019.

1 The VicSuper FutureSaver Growth (MySuper) investment option returns were ranked in the top 10 performing options over 1 month, 3 months, FYTD, and for the 1, 3, 7 and 10 year time periods, as published by the SuperRatings Fund Crediting Rate Survey (SR50 MySuper Index) as at 31 March 2020. Note that past performance is not a reliable indicator of future performance.
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