Understanding volatility
When the markets experience an upward or downward spike it can be difficult not to get caught up in the hype. From attention grabbing news headlines to predictions from industry economists – it seems everyone has a different opinion on what the market will do next and the action you should take. But when it comes to your superannuation, the best strategy is to remain focused on the long-term.
Superannuation is a long term investment. Generally speaking, what occurs in today’s market is not likely to have a significant impact on your super investments over the longer term. And for most people, long term does not mean one, three or even five years but more like 20, 30 or 40 years.
It’s also important to remember that investment markets move in cycles and it is impossible to predict when a market will rise or fall. However, by looking at the historical performance of the share market, we can see that despite short-term volatility, the market always recovers over the long-term.
One of the best examples of such a recovery is the share market crash of 1987, when the All Ordinaries index fell 25% in one day and continued to lose ground over the next five months. It took six years for the market to regain its value, but since then the All Ordinaries has risen more than 50%.1
While it may be tempting to withdraw from the market as a reaction to sudden events, it means you will miss the market’s recovery, which can sometimes happen unexpectedly. So investing for the long term definitely has its merits.
Aside from taking a long-term approach, there are other ways you can safeguard your investments against volatility.
1 Based on the All Ordinaries Price Index.
Diversification
You can mitigate some levels of risk created by market movements through diversification. By spreading your portfolio across a number of different asset classes, you can reduce your dependence on a single asset’s performance. This means a drop in the value of one investment can be offset by gains in another.
Asset classes and investment styles vary from year to year, which means even the best individual money managers aren’t necessarily on top for extended periods of time.
Even if you have access to superior research on managers, it is difficult to predict when one style will outperform another.
So it makes sense not to put all your eggs in one basket and diversify your investment across a range of different managers.
Russell helps you do this by diversifying across a range of asset classes, investment styles and money managers, and mixes them together to give you a single diversified portfolio through Russell Portfolios®.
Russell’s investment philosophy is based on diversification at three levels: Multi-Asset Multi-Style Multi-Manager™. These three levels of diversification have proven to reduce the risk of under performance and provide more stable returns to investors.
Making regular contributions
Did you know that investing the same dollar amount at regular intervals can help smooth out the ups and downs of markets? Investing this way, known as ‘dollar cost averaging’ means you purchase more shares or units when prices are low and fewer when prices are high.
If you are making regular contributions to your super, you are already taking advantage of this proven investment approach. You don’t need a lot of money to commence a dollar cost averaging strategy. By making small regular contributions over time, you might be surprised by how quickly your balance will accumulate. Using this strategy also means that your contributions automatically buy more units when prices are lower and fewer units when the price is higher.
Anything else?
Russell manages your superannuation with a long-term approach that focuses less on the cyclical nature of investment markets. Sound investing is based on balancing risk with return and all investments carry some level of risk. However, we believe risk can be managed to provide more consistent investment outcomes.
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Issued by Russell Employee Benefits Pty Ltd ABN 70 099 865 013, AFSL 220705 (“REB”). This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. The information has been compiled from sources considered to be reliable, but is not guaranteed. Any examples have been included for illustrative purposes only and should not be relied upon for the purpose of making an investment decision. Past performance is not a reliable indicator of future performance. Total Risk Management Pty Limited ABN 62 008 644 353, AFSL 238790 (“TRM”) is the trustee of the Russell SuperSolution Master Trust and the issuer of the Product Disclosure Statement (“PDS”) for the Russell SuperSolution Master Trust. The PDS can be obtained by phoning 1800 555 667 or by visiting www.russell.com.au. Any potential investor should consider the latest PDS in deciding whether to acquire, or to continue to hold, an investment in any Russell product. REB and TRM are part of the Russell Investment Group (“Russell”). Russell or its associates, officers or employees may have interests in the financial products referred to on this website by acting in various roles including broker or adviser, and may receive fees, brokerage or commissions for acting in these capacities. In addition, Russell or its associates, officers or employees may buy or sell the financial products as principal or agent. SS_FACT_Market Volatility_V1_0708_web