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Stock markets and your super

Published: 15 Feb 2021

Riding the storm in an Australian stock market crash

In the past century, there have been a number of stock market crashes, and, while they create nervous times for all investors, they’ve also given the financial world an indication of what happens after a crash, and the lessons to be learnt. 

Stock market crash of 1929

The first, and probably most famous, major stock market crash happened in 1929. It saw the Dow Jones drop by almost 50% in a matter of weeks, and almost 90% over three years, leading to the great depression of the 1930s.

As the first significant global crash, very few investors knew what to do, or what recovery would look like.

Stock market crash of 1987

A major stock market upheaval in October 1987 (nicknamed the Black Monday stock market crash) occurred when investors around the world sold off huge amounts of shares. On 20 October the Australian stock market plummeted 25%, and by the end of 1987 had lost around 10% of its value, compared to the start of the year. By the end of 1998 it had regained around 12%.

Share market dip during the GFC

The Global Financial Crisis of 2008 saw the biggest Australian stock market dip since 1987, when, on 10 October the ‘All Ordinaries Index’ fell by more than 8%. From a low in March 2009, a better understanding of market behaviour and economic policies saw the stock market rebound 50% by September that year.

Shares and the Covid-19 crisis

Unlike previous stock market crises, the 2020 dip was the result of more deliberate policies by governments around the world to halt commerce, transport and industry in order to stem the spread of the 2019 coronavirus – Covid 19.

This led to a sharp decline in the "All Ordinaries Index" of Australian shares, from record highs near late February to a four-year low on 23 March. The market quickly recovered and rose 37 per cent by 9 June before entering a five-month consolidation phase, after which it quickly regained lost ground and finished 2020 positive compared to the start of the year, although it had not quite reached the February highs.

Managing super in a stock market crash

Any stock market crash or dip causes alarm and panic. Successful investors however, know that the key is to sit tight and ride it out. As the history of share markets has shown, short-term crises are followed by periods of recovery, and as the financial world learns more from previous events, it is better prepared to manage new ones.

The vast majority of superannuation accounts contain some shares traded on the stock market, and all balanced accounts will also include other investments such as cash, commodities and property trusts. Shares can be Australian or international, and many balanced funds will contain both.

Over time, the value of shares almost always increase in value, and since superannuation is designed for the long-term, patience is important.

Therefore, even in a global stock market crash, it is usually wise to keep calm and ride it out, rather than frantically switching investments to cash or other assets regarded as ‘safer’.

The golden rule: diversify

To protect against wide-spread losses across any investment portfolio – including your super – there is one golden rule – diversification. Spreading investment across different types of assets can help minimise overall losses if one type of asset loses its value.

All assets carry some level of risk and also potential for growth. Some, such as shares, are seen as having a higher potential for growth, but also higher risk. Others, such as cash and bonds, are regarded as carrying less risk, but their growth potential is also lower.

Everyone is different, and even in times of stability or growth, it’s important to feel comfortable about where your retirement savings are being invested. A good way to work this out, is to see whether are you risk averse or not.

It is natural for people approaching retirement age to opt for investments that carry less risk. However, it’s important to remember that returns may also be negatively affected. It’s also important to consider that your retirement period may be long.

Are you risk averse?

How do I diversify?

All Industry SuperFunds offer different types of investments to suit your risk preferences. And you don’t even need to know a lot about the stock market, bonds or other assets to benefit.

Super funds engage investment experts to keep an eye on the different markets and sectors. They then use their knowledge, research and skill to create a suitable mix of assets, for different risk profiles and objectives. These investment experts do all the hard work, so that members can feel confident that their retirement funds are being invested wisely. Most Industry Super Funds also let members choose different assets themselves, so they can make their super investments even more individualised.

Diversification

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