Market update - sentiment down, petrol up
In markets this week
Investor sentiment is down, but Australians remain positive
The US S&P500 fell nearly 3% for the week, though the Australian equity market had a positive return, underpinned by high commodity prices (such as coal and aluminium), driving up the share prices of local mining companies.
The European stock index recovered slightly from its 10% fall in the previous week. It gained 2.2% on optimism that the conflict may come to a swift end.
Petrol prices increase after Russian oil ban
No doubt you noticed a sharp increase in petrol at the pump this week.
Many countries, including the United States, announced a ban on Russian oil. This pushed oil prices up and is expected to increase the cost of goods that rely on oil for manufacturing or transportation.
Apart from hitting your hip pocket directly, this will also put a lot of pressure on business.
Stocks and bonds down
Stock and bond prices have fallen after US inflation accelerated to a 7.9% annual rate in February. This is the highest recorded inflation in 40 years, eclipsing the previous month's 7.5% figure.
Apart from increasing the costs of goods and services, rapid inflation often leads to decreased consumer spending and economic growth.
Interest rates are likely to increase
Inflation concerns have forced central banks, particularly the US Federal Reserve, to bring forward its increases in interest rates.
Interest rates on US government bonds increased from 1.73% at the end of the previous week to above 2.00%.
Traditionally, increasing interest rates combat elevated inflation and encourage spending and investment. However, they also cause negative returns in Fixed Interest asset class, which can impact your super returns.
Volatility and your super
Volatility is part of having money invested in super. Heightened volatility can cause your superannuation balance to increase or decrease across a short period of time. However, your superannuation is managed to achieve the best financial outcome across the long-term.
Spirit Super has continued to deliver on its return targets. As at March 2022, all of our pre-mixed investment choice options have outperformed their return objectives across their minimum investment horizons. For example, the Balanced Option has returned an average of 8.57% per annum across its minimum suggested time horizon of 7 years (9.48% per annum for Pension members).1
Another important point to note about volatility and superannuation is that the middle of a highly volatility periods is rarely the right time to de-risk portfolios, as this often results in losses being “locked in”.
Spirit Super’s Investment Team applies a forward-looking risk management approach and seeks to re-position the portfolio before such developments. This is exactly what we did across the second half of 2021 and early 2022, where our pre-mixed portfolios were shifted from a slightly “risk-on” posture to a slightly more defensive one.
It is natural to consider switching investment options during periods of elevated market volatility. However, always remember that superannuation is a long-term investment. Changing your investment option(s) in response to short-term volatility is an important decision and should take into account a number of factors such as how long you are investing, your personal risk tolerance, and what part superannuation plays in your overall retirement planning goals.
We recommend members carefully consider any superannuation investment decisions and to get appropriate advice before making a decision.
Get the right advice for your situation
It's natural to feel concerned about heightened volatility and how it affects your retirement savings.
That's why we're here to help.
If you're thinking about switching investment options or are unsure which option is best for you, please get in touch.
You can also book a one-on-one chat with one of our expert Superannuation Advisers. They can offer helpful, straightforward advice to ensure your super is working for your situation.
This service comes at no additional cost – it's part of being a Spirit Super member.
1 Past performance isn’t a reliable indicator of future performance. The value of investments can rise or fall, and investment returns can be positive or negative.
This article is for general information only and doesn’t take into account your objectives, financial situation or needs. You should assess your financial position, personal objectives and needs before making a decision based on this information.