Market Update: your questions answered about the current market volatility

11 December 2023

We've answered some of the most frequently asked questions about the current market volatility below.

Why has my balance decreased since the beginning of the financial year?

The share markets have not performed as well as the first half of the year – and this is something all superannuation funds are currently experiencing with their investments.

Can you give me more information about why the markets are not performing as well?

There are three main pressure points affecting markets:

1. Inflation – around the world, post-pandemic inflation has increased, and governments have been using interest rates to curb spending. This is impacting sales and therefore companies’ profits. The good news is that inflation is showing signs of slowing in major markets and is predicted to be more stable in 2024.
2. Global conflicts – wars do result in investors being more nervous and cautious, which may lead them to consider different investment strategies. The good news is that historically, markets do bounce back, although past performance is not a reliable indicator of future performance. For most people, superannuation is a long-term investment that will continue to grow even with short-term setbacks due to investor caution.
3. The cost of energy – linked to conflict, the uncertainty around the flow of oil and gas in certain regions has pushed the prices of energy up. For all companies, this cost impacts their profits, resulting in lower returns.

Is this something I need to be worried about?

Changes and volatility in the market are common aspects of investing and may offer attractive investment opportunities into assets that haven't been performing well but are expected to improve.

Our investment managers and the Brighter Super investment team are focused on managing your funds, working towards growth over time and diversity of your portfolio – so not all your eggs are in one basket.

If you are feeling uncertain or considering making a change, talking to a financial adviser can often be helpful.

If you already have a financial adviser, they can help you make informed decisions about your Brighter Super account.

If you do not have a financial adviser, Brighter Super’s team of in-house financial advisers are here to help you¹.

Brighter Super members can receive intra-fund advice on a single topic related to superannuation, such as investment options, at no additional cost. At an additional cost we also offer scaled advice and comprehensive advice for retirement planning.

You can find out more about our advice services at brightersuper.com.au/advice.

Should I change my investment strategy and switch to more cash?

We recommend members seek financial advice before making any changes, especially in response to short-term market volatility.

Switching investment options during a market downturn can solidify losses and potentially cause you to miss out on the eventual recovery.

Cash and fixed interest investments can help decrease overall portfolio volatility, but keep in mind that only investing in cash and/or fixed interest may result in a lack of exposure to growth assets like shares and property, which, in the long term, may result in your portfolio not keeping up with inflation.

Are you feeling uncertain or considering making a change? Talking to a financial adviser can often be helpful.

If you already have a financial adviser, they can help you make informed decisions about your Brighter Super account. If you do not have a financial adviser, Brighter Super’s team of in-house financial advisers are here to help you¹.

Brighter Super members can receive intra-fund advice on a single topic related to superannuation, such as investment options, at no additional cost. At an additional cost we also offer scaled advice and comprehensive advice for retirement planning. You can find out more about our advice services at brightersuper.com.au/advice.

Try our investment risk profile tool

To learn more about your risk tolerance, you can also try our Investment risk profiler. This is a short online questionnaire that can help you choose an investment strategy by yourself.

After answering the questions, you can download a report explaining the results of your risk profile.

Please note that this is general advice only and does not take into account your personal financial situation, individual needs or other factors which may be relevant.

Could you explain the impact of inflation in more detail?

• Inflation is an overall increase in the level of prices of the goods and services that individuals and households buy.
• Inflation reduces the value of money, making it more expensive to buy products and services.
• If inflation is not controlled it can reduce purchasing power, decrease living standards, lead to higher interest rates, impact investment returns and create economic uncertainty.
• To counter inflation, central banks increase official interest rates. When interest rates go up, the cost of borrowing increases which can reduce how much people spend, hurt companies' profits, and, in turn, lead to lower share prices and the value of other investments dropping.
• Because prices are rising so fast, central banks might have to raise interest rates even more or keep them high for longer than we thought.

Could you explain the impact of global conflicts and the wars in Ukraine and Gaza in more detail?

• Global conflicts, like the situation between Russia and Ukraine or recent issues between Israel and the Palestinians, can introduce a lot of uncertainty and instability into financial markets.
• When there's a threat of conflict and the potential economic problems that come with it, this can make investors nervous.
• These conflicts can also affect energy and commodity markets, driving up oil prices and making inflation worries even worse. They can even disrupt the supply chains of various industries, causing more uncertainty.

Could you explain the impact of energy prices in more detail?

• The cost of energy, especially oil, has been volatile lately because of worries about disruptions in the world's energy supply.
• Russia, for example, is one of the biggest oil producers globally and has been hit by trade sanctions from many countries due to the invasion of Ukraine. The recent problems between Israel and the Palestinians have also raised concerns about what could happen to the energy sector with concern about the spreading of the conflict to other countries in the Middle East.
• When energy prices increase, it can push prices up for everything else, driving higher inflation and make consumers cut back on spending as they must spend more on energy.
• This also affects companies that use a lot of energy in their production processes, reducing profitability.

What should you do?

The impacts of geopolitical tensions and market volatility are being felt worldwide. Negative news headlines can make us feel uncomfortable, but it is important to avoid snap decisions during times of uncertainty.

For most people, super is a long-term investment. Staying invested in a diversified portfolio can spread and minimise the risk, helping to reduce the impact of market volatility.

While past performance is not a reliable indicator of future performance, history shows that markets increase over the long term. A rushed decision to switch investment could impact your super’s long-term growth. It’s important to keep your investment timeline in mind and to stay the course when markets are volatile.

For useful information about understanding investment risk, refer to our article, Investment basics: understanding risk.

If you are feeling uncertain or considering making a change, talking to a financial adviser can often be helpful. Find out more and how to book an appointment at brightersuper.com.au/advice.

1. Brighter Super Financial Advisers are Authorised Representatives of Industry Fund Services Limited (IFS) ABN 54 007 016 195, AFSL No 232514. ESI Financial Services is a wholly owned entity of LGIAsuper Trustee (ABN 94 085 088 484) as trustee for LGIAsuper (ABN 23 053 121 564) trading as Brighter Super. ESI Financial Services provides financial services to Brighter Super members and employers under a service agreement with Brighter Super. ESI Financial Services has engaged IFS to facilitate the provision of financial advice to Brighter Super members. ESI Financial Services has also engaged Link Advice Pty Limited ABN 36 105 811 836, AFSL No 258145 to provide Brighter Super members with access to limited personal advice over the phone in respect to Brighter Super products.