Current Market Volatility

This week, a major Australian newspaper published an article titled “How the stockmarket plunge will affect your super, but don’t panic”, which is a pretty good summary of this article! 

It’s normal for investors to feel a little uneasy when share prices go down, but superannuation is a long term investment and most people choose to ride out the short term fluctuations.

Here are three things to consider right now when it comes to your super.

 

1. Historic long term stock market performance is strong

During the last 30 years, Australian shares have delivered an average annual return of 9.7% each year, second only to U.S. shares which have returned 10.8% each year.*

According to Vanguard Australia, if you invested $10,000 in Australian shares on 1 July 1991, your investment value would have increased to $160,498 by 30 June 2021, in spite of stock market crashes, the Global Financial Crisis, natural disasters and a global pandemic. 

While past performance, doesn’t guarantee future performance, historic results mean that investors can feel reasonably confident that the overall positive growth trend will continue in the long term, despite the current volatility in Australia and overseas.

 

2. Christian Super is performing strongly vs other super funds through the volatility

The current market volatility is impacting members of most super funds. We are closely monitoring and actively managing our investment portfolio, with the aim of providing the best possible returns in the current environment. 

Independent super fund ratings agencies such as SuperRatings also provide monthly updates. Their Top 10 Super Funds webpage shows that our default My Ethical Super product has been one of the top 10 Balanced** performers this financial year, as well as during the latest 1 year and 3 year periods.

 

3. Switching to cash can lock in losses

While most people choose to ride out short term fluctuations, some people think about switching their investment to their super fund’s cash option until things settle down. While this might seem like a good idea, it can lock in losses, which mean you could miss out when the market recovers. This is because your super balance is calculated using unit prices.

What are unit prices?

Each one of our investment options is made up of units. The unit price is the value of each unit, and it is calculated based on the combined value of the assets (e.g. shares or property) in the investment option.

Unit prices will change if the value of the assets in the investment option change. For example, if share prices increase or decrease.

Like most super funds, Christian Super uses unit prices to calculate account balances and apply investment earnings to your account. We calculate unit prices each week.

Simple Example: Paul vs Amanda***

Paul and Amanda are both Christian Super members. At the end of May 2022, they each had $100,000 invested in the default My Ethical Super product. The unit price at the end of May was $100 per unit, therefore they each had 1,000 units in My Ethical Super.

1,000 units in My Ethical Super x $100 per unit = $100,000

Two weeks later, the unit price decreased to $95 per unit due to market volatility, therefore their balances decreased to $95,000.

1,000 units in My Ethical Super x $95 per unit = $95,000

Paul decided to switch into the Ethical Cash option, which had a unit price of $50 per unit at the time he made the switch. This meant he sold his 1,000 units in My Ethical Super and bought 1,900 units in Ethical Cash. 

$95,000 ÷ $50 per unit = 1,900 units in Ethical Cash

Amanda decided to stay invested in My Ethical Super.

Three months later, Paul decided to switch his super balance back into My Ethical Super as the recent market volatility appeared to have stabilised. The unit price of Ethical Cash had increased to $50.50 per unit, so Paul’s balance had increased to $95,950.

1,900 units in Ethical Cash x $50.50 per unit = $95,950

The unit price for My Ethical Super had also increased, to $105 per unit. Therefore, Paul received 913.8 units when he switched back.

$95,950 ÷ $105 per unit = 913.8 units in My Ethical Super

Because Amanda stayed invested in My Ethical Super, her account balance increased to $105,000 (compared to Paul’s balance of $95,950), because she still had 1,000 units in the product.

1,000 units in My Ethical Super x $105 per unit = $105,000

 

Considering switching investment options?

Christian Super has a number of different investment options, each with different percentage allocations to growth and defensive asset classes. Different options may be more suitable for different people, depending on their personal risk appetite and their investment time horizon.

If you’re thinking about switching investment options within Christian Super, you may wish to take advantage of FREE phone call with a financial adviser to help you decide what to do. Contact our Member Care Team for more information or to book an appointment.

 

Further questions?

If you have any additional questions about your Christian Super account, please contact our Member Care Team – we’re here to help. 

 

The content of this article includes advice that is general in nature and does not consider your personal situation. Christian Super encourages all people considering their options in retirement planning to seek out qualified professionals who can provide specific personal advice. Past returns are not a reliable indicator of future performance.

* Source: 2021 Vanguard Index Chart.

** Balanced funds are defined as those that have 60-76% growth assets.

*** This simple example does not take into account any contributions made or fees paid. The unit prices are for illustrative purposes only and do not reflect the actual unit prices for the investment options used in the example.