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Home News Investing your super when the market’s down

You’ve probably heard it dozens of times already, and you’ll hear it dozens more: super is a long term investment, and volatility is a normal part of investing for the long term.

But we know it’s one thing to hear that when your balance keeps going up, and you get to imagine just how much it will keep growing over that long term. It’s another altogether when you see a drop in your balance from one day to the next as a result of significant volatility, like we’re seeing now.

So, why do we keep talking about the long term?

What we can learn from history

While past performance is not an indicator of future performance, Qantas Super investment manager Chris Grogan said a hundred years of trends give us a good indication of where the market will likely go from here.

From the crash of 1929 to that of 1987, and to the recession Paul Keating said we “had to have”, markets have always recovered.

In fact, the recovery from the recession of 1991 saw Australia record almost 30 years of consecutive growth. This was the longest stretch of growth without a recession for any country in the developed world since World War II.

More recently, in our December quarter market update we looked at how the ASX reached a record peak of 7,041.4 points in January, after reaching its pre-global financial crisis peak in July 2019.

Capitalising on the lows

Along with reminding us that markets do eventually recover, these past events can serve as a reminder that by changing to a lower risk option in a downturn, you risk crystallising your loss by selling out at a time when prices are low.

Let’s look at it in terms of buying and selling a house: if you bought a house for $1 million, and then house prices dropped and your home was valued at $750,000, you would only make a loss if you actually decided to sell it at this point.

With this in mind, we can see in the chart below the effect that switching from Growth to Cash in December 2008, which was on the way to the bottom of the market during the Global Financial Crisis, would have had on a Qantas Super member’s returns.

Comparing investment options during previous volatile market events

The chart below shows investment returns after fees for Qantas Super’s Growth and Cash investment options for the period December 2008 to December 2011.

The returns shown may differ slightly from individual returns. The actual investment return for your account will depend on the period of time you were invested in an investment option, the timing of transactions in and out of your account, and the impacts of compounding. Past performance is not a guarantee of future performance.

While this member would have benefited in the short term as markets continued to fall over the next few months, they would have missed out in the medium to long-term as markets recovered.

Though there were a few hiccups on the road to recovery in the form of the European sovereign debt crisis, the Growth option generated stronger returns over the three years to December 2011 than the Cash option.

While no one can predict where the bottom of the market is, when the rebound will kick off in earnest, or whether there will be another dip, it’s important to remember than changing your investment strategy for even a short period can have a significant impact on your long-term outcomes.

Rather than selling, Chris explained that long-term investors often see times like this as an opportunity to find deals, and invest more in high-quality assets at a lower price.

“This is just a moment in time, and quality assets are going to bounce back. There’s a lot of fear at the moment, but now is a time for courage, not fear,” Chris said.

“It’s important to look at the bigger picture in the world. Once the pandemic is over, we’ll still have consumers who want to consume – people will want to go to restaurants, be entertained, and travel.”

Other things to consider

As we wait for markets to start their recovery, there are a few things you can think about depending on whether:

You've still got a while until retirement

  • Are you invested according to your risk profile?

    This experience could serve as a good time to re-examine your attitude to risk.

    After all, thinking about risk in the abstract when things are going well is a different story to actually being faced with it in reality, as we are now.

    Each of our investment options has a risk level rating, to let you know how much risk you should be comfortable with if you want to invest your super in that option.

    For example, our Aggressive option carries a high degree of risk. This means that, at times like this, it will usually see the most volatility.

    The trade-off is that this option will also offer the potential for higher rewards when markets recover. As at 30 June 2019 it had returned 10.3% per annum over the past three years, after investment fees.

    Our Conservative option, meanwhile, carries a low to medium degree of risk.

    The trade-off is that it also offers lower rewards – as at 30 June 2019 it had returned 5.7% per annum over the past three years, after investment fees.

    As you consider your investment options, ask yourself how comfortable you feel about this balance between risk and reward, and what mix you need to reach your retirement goals.

    Learn more about risk and diversification
  • Are you invested for your time horizon?

    When thinking about your tolerance for risk, it’s also important to think about how long you have to ride out the ups and downs of the market to achieve your goals.

    This is called your time horizon, or how long you will have money invested in the market.

    Each investment option is designed with both risk and reward, and time in the market in mind.

    For example, the minimum suggested time to invest in our Aggressive option is 10 years, while Conservative is designed for members with a time horizon of at least three years.

    Each option is designed to deliver on its return objectives over its particular time period, and because volatility is a normal part of investing for the long term, expected years of negative returns are actually built into these objectives.

    For example, our Aggressive option aims to achieve a return that exceeds CPI (the Consumer Price Index) by at least 5% p.a. over a 10 year period, after tax and investment fees. In achieving this objective, it also aims to limit the likelihood of a negative annual return to less than five in 20 years.

    Our Conservative option, meanwhile, aims to achieve a return that exceeds CPI by at least 2% p.a. over a three year period, after tax and investment fees. It also aims to limit the likelihood of a negative annual return to less than two in 20 years.

    Aligning your investment time horizon with the time horizon of the option you’re invested in means you can give your super the appropriate time to grow and recover from the normal ups and downs of the market.

  • How have you invested your current account balance vs future contributions?

    Did you know you can choose to invest your current account balance and your future contributions differently?

    You can choose much of your current account balance to invest in each option by dollar amounts, or by percentage.

    Meanwhile, you can specify how much of your future contributions will go into each option by percentage. Future contributions include any from your employer, and any roll-ins, regular or one-off contributions you may make.

You're retired

  • Changes to minimum drawdown rates

    After working so hard for years to build up your super, we know it can be especially unsettling to see it drop right when you need it most: in retirement.

    However, it’s important to remember that even in retirement, your super will still be working hard for you for many years to come. In fact, around 60 percent of a member’s wealth can be earned through investment during retirement. (Russell Investments: ‘The 10/30/60 Rule’, January, 2015.)

    Currently, members with an income account must draw down, or withdraw, a minimum amount each financial year. This amount is a percentage of your account balance, with the percentage dependent on your age.

    To help keep more of your money invested and growing, the Federal government has also announced it will reduce the minimum amounts that retired members must draw down from their income accounts.The rates will be reduced by 50 per cent for the 2019/20 and 2020/21 financial years.

    This new measure aims to help you manage the impact of the current volatility in global financial markets, by reducing your need to withdraw investment assets during this financial crisis.

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