Headlines about falling markets can be worrying – particularly if you’re approaching retirement. Find out more about the recent causes and what to consider.
After stellar rises in 2021, share markets lost some of their shine in January with steep falls that have attracted plenty of media attention. This is a market correction after a sustained period of share market gains. A few factors have spooked markets, including the prospect of interest rate rises, the ongoing disruption caused by the Omicron variant, and uncertainty about conflict between Russia and Ukraine.
If your super is in a balanced investment option, the falls in the share market are unlikely to be fully reflected in your account balance. That’s because your investments are spread across a range of different types of assets, such as bonds, property and infrastructure – some of which are largely unaffected by the factors behind the share market falls.
There are also good reasons to believe markets are reacting to short-term challenges likely to be resolved relatively quickly. Central banks are committed to a gradual rollout of interest rate rises, the economy is doing well and, despite the challenges of Omicron, we are slowly but surely getting to grips with Coronavirus. As a result, our short-to-medium-term outlook remains positive.
WHAT CAUSED THE SHARE MARKET FALL?
There are a few reasons that the share market has taken a tumble over the past month. These include:
- The prospect of earlier-than-expected interest rate rises by central banks, both in Australia and overseas. Rising inflation is the driving factor.
- The Omicron variant, which affected business operations. For example, sick workers resulted in disrupted trucking routes and empty supermarket shelves.
- Geopolitical uncertainty, including a Russian military build-up on the border with Ukraine.
- Finally, stock markets have surged over the past 20 months. After such a sustained period of growth, a correction is not unusual.
WHAT DO YOU NEED TO CONSIDER?
As with all investment decisions, there are two key factors you should take into account. First, your risk appetite – how comfortable are you with experiencing falls in your investments? Second, your time horizon – when do you need to withdraw your money?
If the current falls in the share market are making you uncomfortable, it could indicate you are invested in an option that may not match your risk appetite. It could be helpful to speak to a financial adviser, if you don’t have one, to review your different investment options. If you’d like to talk to someone, please call 0404167989 or email email@example.com at Bluerocke Investment Advisers
If your time horizon is longer than the medium term (say, five years), then you may have time to ride out any losses and simply wait for the market to recover. Keep in mind, switching to a more conservative investment option could ‘crystalise’ your losses – turning a paper loss into an actual loss – leaving you with less capital and a lower growth investment.
At times like these, it’s important to keep in mind:
- Stock market corrections are normal, and can be healthy
- If you switch to a more conservative option such as cash, you risk locking in your losses
- Shares have performed well over the long term
- The economy is strong and unemployment remains low.
WHY MARKET CORRECTIONS ARE NORMAL
It’s impossible to know for certain what the future holds. Nevertheless, it’s important to put the current share market falls in context – they follow 20 months of strong market returns driven by abnormally low interest rates. The reaction of markets in recent weeks is best seen as a return to normality.
We are here to support you and things you can do include:
- Reading our regular market updates
- Staying up-to-date with the latest market developments
- Reviewing your super to ensure it aligns with your risk appetite and financial objectives.
WE’RE HERE TO HELP
As you keep your long-term goals top of mind, remember: we are here to help – with news, insights and helpful resources available on our website, www bluerocke.com to help keep you up-to-date on the latest.
DEV SARKER DIRECTOR
FCA, MBA, ADFP
p 1300 71 71 36 | m +614 0416 7989