Why super balance goes up and down

We invest money in the markets for you and markets change constantly. Your account balance reflects these changes. Investment markets, particularly share markets, can go up or down depending on what’s happening in the world. Over the last six months, a lot has been happening!

As a result of the pandemic, the increasing prices of many goods (which drives inflation) and the Russia-Ukraine war, world share markets have not been performing as strongly as they did last year. This means we expect that overall superannuation returns will be lower this year.

The good news is for those who stay the course, markets can rebound swiftly and strongly, and the trick is not to over-react or panic.

Why is this happening?

News about increasing inflation and interest rates is causing financial markets to fall and this is affecting your super balance.

Generally, share markets fall when inflation increases. This is because inflation increases costs for a business which lowers profits. Inflation also affects household budgets and prices for everything you buy, particularly at the supermarket.

Central banks try to counter rising inflation by increasing interest rates. Rising rates usually cause the economy and the markets to cool down and we are seeing the effects of this across global markets. In mid-June, the US announced that inflation was 8.6%. This sparked concerns about rising rates and share prices fell, taking down super balances too. Markets get nervous when rates rise because if they rise too quickly, it can sometimes tip the economy into a downturn. It’s a fine balancing act.

It may not all be bad news though. Price increases for goods can increase pressure for wage increases too, giving some people more money to spend. Also, when markets fall, investments with good long-term growth prospects can sometimes be bought at cheaper prices. This provides opportunities for long-term investors and we expect our super investments to benefit from this over time.

What is Rest doing to help?

Rest has been keeping an eye on rising inflation and factored it into our investing decisions, moving the portfolio to a more defensive position. We have shifted away from higher risk assets, like shares, to more defensive assets, like agriculture. Our assets that are not traded on markets (held directly), are performing well and helping to stabilise the portfolio. Within the Core Strategy, our direct investments include buildings, farms and even a wind farm. This highlights exactly why we hold a diverse range of investments for you; some perform better than others at different times which helps smooth out returns. We have a team of experienced investors who don’t panic in times like these and step back, re-assess and make sure we remain well positioned to meet our longer-term objectives.

What do I do next?

It’s important to remember that for many of you, the higher inflation environment can be positive longer-term in the form of higher wages and reduced house prices. Additionally, with the opportunity to acquire cheaper investments in super, we expect that the future returns in super will be higher as a result, which ultimately sets you up for the future.

It’s important right now to not panic and remember that for most of our members super is a long-term investment. No one can time the markets all the time, not even professionals, and shifting to cash and back at the wrong time could really damage your balance.

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.