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Market volatility
What is happening in the investment markets?
The short answer is, a lot! But the more important point is, don’t panic.
Investment markets by nature are volatile - that is returns vary from year to year - but they operate in cycles. So years such as this past year, where returns have been low or negative, are often offset by positive returns in past and future years. Superannuation is a long-term investment, and you should consider the recent market volatility in the context of the strong investment returns seen in previous years.
As a superannuation fund member, you have money invested in the investment markets. As a result, you may have questions around how your super balance could be impacted by the recent volatility. To help you with some of these questions, we have listed some Q & As which may help you gain a sounder understanding.
- Has the recent market behaviour affected my superannuation balance?
- I feel uncomfortable with the way the markets are performing – what can I do to safeguard my superannuation?
- Are other superannuation funds experiencing the same volatility?
- What is the outlook for next year?
- What triggered the fall in investment markets in the first place?
- How can I find out more on investment markets?
- Where can I go if I have any other questions?
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I feel uncomfortable with the way the markets are performing – what can I do to safeguard my superannuation? |
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A. |
It’s important you don’t look at the returns posted this year in isolation. Superannuation is a long-term investment. Investment markets – particularly share markets - are volatile by nature, but over the longer-term, they have historically provided higher levels of returns. Low or negative returns posted in years such as this year, are often offset by positive returns in past and future years. While your superannuation balance may have declined more recently, don’t forget to consider how much it may have increased over the longer-term. The chart below displays how much an investment of $10,000 would have grown in each of the main asset classes over a 15 year period. As you can see, there is a general upward trend in returns over the longer-term despite the many occasions where the market has fallen.
Source: Vanguard Investments® Performance Summary to 30 September 2008. Returns quoted are taken from commonly-reported indices. Past performance is not a reliable indicator of future performance. If you still feel uncomfortable about how the markets are performing and the potential impact on your superannuation savings, we recommend you seek advice from a financial adviser.
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Are other superannuation funds experiencing the same volatility? |
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Please be assured, the effects of this year’s investment market volatility are being felt globally. Other superannuation funds have been dealing with the same circumstances – and challenges – that Plum has. You are not alone with your concerns. Most individuals have not seen negative returns for many years primarily due to strong Australian and global share markets. Take a look at the table below which shows the average return that Plum members have received on a moderate investment option compared to the average return of a wide selection of other superannuation funds. This illustrates that the Plum moderate investment option has posted better returns than the average of many other superannuation funds.
#This calculation is a member weighted average of the Plum moderate default options offered to Plum members. For further information, please call 1300 55 7586 or email us at service@plum.com.au ^The Intech Growth Survey represents a wide selection of Australian superannuation funds with a similar proportion of growth assets to Plum's own investment option. Note: September figures were not available at the time of publishing this article.
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What is the outlook for next year? |
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There are no guarantees when it comes to the future performance of investment markets. World events such as political unrest – as well as economic factors such as consumer confidence – can all affect the strength of an economy. This can then have flow-on effects on the performance of investment markets. Again, it is important to remember investment markets are cyclical in nature – poor returns in some years are often offset by positive returns in future years. The Trustee of
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What triggered the fall in investment markets in the first place? |
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The problem started in the United States as a result of the loose lending standards applied to home loans. It became apparent in the middle of 2007, and quickly spread to other countries, becoming what is now commonly known as ‘the sub-prime crisis.’ A number of major US banks and lenders had provided home loans to individuals who simply didn’t have the capacity to make regular payments on these ‘sub-prime’ loans. When interest rates eventually rose (they had been low for quite some time) defaults on the loans began to increase. These defaults were compounded by a widespread decline in house prices and weaker employment conditions. While many of these loans were made to US home borrowers, the burden of the loan defaults fell not just on US lenders, but on global companies and investors who had indirectly provided the financing for these ‘sub-prime’ loans. As a result, billions of dollars of ‘bad loans’ were written off by the banks and lenders – putting great strain on the global financial system. When this ‘crisis’ became evident, it significantly affected consumer and investor confidence. The drop in confidence, together with a weaker economic outlook across the globe has put pressure on investment markets, as individuals, companies, investors and borrowers have become more cautious. This has led to a drop in investment markets in Australia and overseas.
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How can I find out more on investment markets? |
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We try to provide you with as much information about your superannuation options as possible, and any significant events which may impact your superannuation savings. It is, however, very difficult to predict events and their short and long-term effects. Did you know? The following services are available for you to access information throughout the year:
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Where can I go if I have any other questions? |
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You have a number of options:
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An interest in the Plum Superannuation Fund ABN 20 339 905 340 (Fund) is issued by PFS Nominees Pty Ltd ABN 16 082 026 480 AFSL 243357 (Trustee). The Fund administrator is Plum Financial Services Limited ABN 35 081 812 731 AFSL 243356 (Administrator). This material has been prepared by the Administrator and it contains information that is general in nature. The information does not take into account your objectives, financial situation or needs. Before acting on the information you should consider whether it is appropriate having regard to your personal circumstances and seek professional advice. The Administrator recommends that you consider the Fund’s Product Disclosure Statement (PDS) before you make any decisions about your superannuation. To obtain a copy of the Fund’s PDS please contact a Member Services Consultant on 1300 55 7586.
Neither the Administrator, the Trustee, nor any other company in the National Australia Group of companies accepts liability whatsoever for any decision that is made on the basis of or in reliance of the information contained in this material. Please note that the information contained in this material is current as at 18/07/2008. Any changes in law or policy have not been incorporated.
*Members can access the services of financial advisers (licensed through GWM Adviser Services Limited ABN 96 002 071 749 AFSL 230692 (GWMAS) or through other licensees pursuant to an agreement between PFS Nominees Pty Ltd as trustee of the Plum Superannuation Fund (Trustee). GWMAS and Plum Financial Services Limited (Plum) are part of the National Australia Group of companies). The financial advisers and their licensees may receive a commission when applications are lodged for certain financial products. Further information on commissions can be obtained from the financial planner's Financial Services Guide.
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Email: | service@ plum.com.au |
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Mail: | GPO Box 63 Melbourne Vic 3001 |
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