As the world comes to grips with the shock referendum outcome in the UK, where voters narrowly backed an exit from the EU, short-term volatility has wiped trillions of dollars from the value of global stock markets.
For Australians who had barely heard the word “Brexit” until last week, the volatility and dire predictions from some commentators left many worried about their own investments, in particular superannuation
No one can predict exactly what will happen but the diversified assets that make up a typical member’s balanced investment option means the effects will be far more muted than the financial market movements reported on the nightly news.
Indeed, depending on the type of fund you are in you may be well placed to ride out the volatility and obtain good long-term returns thanks to greater exposure to income-producing assets not listed on sharemarkets.
The increasingly interconnected nature of financial markets means fear about trade relations, political stability and business conditions on the other side of the world can reverberate globally and locally.
While it is understandable that people feel panicked when prices fall and are tempted to pull out of investments or make major switches into cash or other investments that are less affected at the moment, the lesson of the GFC is that exactly the opposite approach worked best.
Just last week, independent ratings agency SuperRatings released data confirming this. Their analysis found that while most Australians saw their superannuation balances drop by about a quarter within a few months of the GFC, those who kept their money in a diversified balanced option not only saw that money return, but saw it grow at a very solid rate.
Since March 2009, across all Australian superannuation funds, the median balanced option has delivered a staggering 86 per cent return. At the top end, the best performing funds have managed to accumulate returns that have compounded to more than 100 per cent. These diversified balanced investment options also managed to deliver returns well above the advances made on the sharemarket during the same period.
Most people will see global markets go through several major corrections during their working life, generally featuring panic selling and dire predictions for the future, but it is those who play the long game who are best able to weather the storms.
This understanding is what has seen many Australian super funds deliver such an extraordinary post-GFC asset recovery. In the wake of the GFC, with expectations of greater volatility, industry super funds have continued to diversify members’ savings by investing across a broad range of asset classes so they are not solely reliant on listed financial markets to drive returns.
While post-Brexit volatility is likely to continue, with plenty more headlines about falling markets and uncertain business conditions, remember that your retirement savings are invested broadly and are a 40-plus year proposition.
History teaches us that those who hold their nerve are rewarded.
This first appeared in the Daily Telegraph on 29 June 2016.