Superannuation Investment in Tumultuous Times

Provided by Garrie Lette, Chief Investment Office, Catholic Super

Market volatility has raised its head with a vengeance in the early weeks of the 2011/12 financial year. With newspaper headlines of multi-billion dollar losses in sharemarkets, no doubt many members will be feeling very unsettled.

Whilst we can’t provide definitive answers to the many questions which arise, a few points are worth making:

• Superannuation investment is for the long term.
  
  
• For members not intending to draw upon their benefit for the next 10 or 15 years, the level of markets in August 2011 is of little consequence on their end benefit. Over time the recent market falls will probably mean higher balances as new contributions are being invested at lower levels which have a great potential to grow over time. Admittedly, this perspective will be of less comfort to members closer to, or already in, retirement.
  
  
• Superannuation portfolios are typically highly diversified across a number of different asset classes (Cash, Property, Infrastructure, Bonds, Currency, Shares etc.)
  
  
• At Catholic Super, the Managed Choice options contain exposure to a number of asset classes and literally thousands of individual securities or investments.
  
  
• It is natural that attention, including media attention, is focused on parts of the portfolio which are experiencing the heaviest losses. Currently this happens to be shares. However, other parts of the portfolio will be faring relatively well and offsetting at least some of the losses experienced in shares.
  
  
• Overseas shares have fallen in valuation over the last week, but this fall has been in large part effectively offset by the fall in the Australian dollar against the US dollar. The Australian dollar has fallen from above US$1.10 to below US$1.00.
  
  
• We expect that the unit price for our Balanced Option has fallen significantly since the start of the new financial year. However, it is a long way shy of what might be expected given recent newspaper headlines. Also, this fall must be viewed in the context of the 11.4% return on the same option over the 2010/11 financial year.
  
  
• Members should try to avoid knee jerk reactions. History has shown that for the vast majority of people, the best investment approach is to maintain a diversified portfolio of assets in a mix which is appropriate given their long term objectives and risk profile, and then to stick to their guns.
  
  
• Changing strategy in response to short term market volatility is rarely recommended. That being said, the appropriate action for any individual at any point of time will clearly depend on a wide range of factors.
  
  
• Finally, any member who is concerned about recent market developments should feel free to talk through his/her particular circumstances with one of our financial planners.