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June 24 2022
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Investment Updates

Understanding if switching investment options is for you


Investment Market News

With lots of information circulating in the media about economic conditions and investment markets, understanding the impact this may have on your super is important. We know that when negative news impacts investment markets it is natural to be concerned. It is also important to remember that markets moving up and down over time is also normal, especially when the news focuses on increased economic uncertainty.

When you invest via your super it’s natural to want to benefit from rising markets, and to want to avoid falling markets. After all, that is why members choose to invest with a professionally managed super fund. Recent news in the market highlighting rising inflation and the increases in interest rates that central banks are using to help combat this, is increasing uncertainty and the result has been investment markets not performing as well as they did in the last financial year.

Super for the Long-Term

Taking action to switch to a lower risk option when this happens can be very tempting, but for most of our members remembering that your super investment is for the long-term is also a useful consideration. Whilst past performance is not an indicator of future performance, history shows us that markets typically rebound and when this happens the movement upward can be quick and strong. Staying the course can often result in a better outcome in the long-term compared to switching options.

Time In the Market Beats Timing the Market

Choosing inaction over action may feel uncomfortable in the short-term, but it can deliver long-term benefits. Predicting short-term market moves, either up or down, is notoriously hard. Looking at what has happened in Australian equities helps illustrate the risks of trying to time investment decisions. For example, $50,000 invested in Australian equities (via the ASX 200 Index) for a decade to the end of March this year would have become over $131,000. If that same investment of $50,000 had been out of the share market for just the ten best days of market returns over the same period, the resulting balance is over $47,000 lower!

Time in market is more important than timing the market

Over the past 10 years, missing the best 10 days of the market result in significantly lower returns

Trying to time the market. Missing the 10 best days of the market resulted in $84,360 returns. Time in the market ASX200 index resulted in $131,706 returns. Trying to time the market. Missing the 10 best days of the market resulted in $84,360 returns. Time in the market ASX200 index resulted in $131,706 returns.
If $50,000 invested over 10 years and stayed in the market it would equal being $47,346 better off that if the best 10 days were missed. If $50,000 invested over 10 years and stayed in the market it would equal being $47,346 better off that if the best 10 days were missed.

Source: Bloomberg as at 31 March 2022

Total returns including dividends from $50,000 invested over 10 years.

Past performance is not an indicator of future performance. Investment returns are only one factor that you should consider when deciding how to invest your super.

Imagine a member investing $100,000 in Rest’s Core Strategy at the end of 2019. In the first quarter of 2020 the investment markets became very nervous about the impact that the quickly spreading Covid-19 virus could have. If this member had chosen to switch their Core Strategy super balance and move it to the cash option because of the uncertainty and the fear of falling markets in March 2020, their balance only two years later at the end of March 2022 would be $89,764. If this same investor had stayed the course in the Core Strategy throughout this time their balance would have been $115,863. Switching to the cash option and staying there would have cost this investor over $25,000 in as little as 2 years, as shown in the graph below. 

Staying the course through volatile times

Investment of $100,000 from 31 December 2019 Core Strategy and Cash investment options

Investment of $100,000 from 31 December 2019 Core Strategy and Cash investment options Investment of $100,000 from 31 December 2019 Core Strategy and Cash investment options
If $100,000 invested in Core Strategy through volatile times equals $25,792 better off by staying the course

Source: Rest Core Strategy, Rest Cash, March 2022

Past performance is not an indicator of future performance. Investment returns are only one factor that you should consider when deciding how to invest your super.

Regardless of short-term market movements, Rest’s Core Strategy where most members are invested, has delivered a 10-year rolling return of 8.50% per year compared to its investment objective return of 4.97%.

It is of course important for Rest members to be in the investment option that best suits their circumstances and the level of risk that they are comfortable with. Before taking any action, reviewing your personal goals may be helpful. 

Abacus

Check your investment choice is right for you

Before choosing an investment option(s), you should consider your risk appetite and return objectives. In just 7 minutes, Rest’s Digital Advice Investment Choice Solution will ask you some simple questions to help you learn more about your investment risk profile and give you advice on which Rest investment options are recommended for you.

Members have access to a range of Rest’s Digital Advice solutions available 24/7 at no additional cost.


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