Morgan Stanley
  • Wealth Management
  • Mar 27, 2020

What does market volatility mean for your super?

An increase in market volatility can create a challenging environment for investors and more specifically, the wider superannuation industry. Many people start to wonder, how does this affect my super?

Although headline-grabbing daily news on share market movements can be distracting, and at times unsettling, it is important to remember superannuation is a long term investment. As with any long term investment, your super will no doubt be exposed to multiple market cycles where at times investment markets will face risk and uncertainty.

For example, there has been a substantial fall in equity markets in the last few weeks, but that is on the back of an extraordinary period of investment returns over the last decade. In a twenty year period, you can expect to experience four or five downturns.

How does market volatility affect your super?

How market volatility affects your super largely depends on which investments you’re exposed to, and when you plan on accessing your super.

Most Australians have their super investment in balanced options. This means your money is likely to be diversified across many asset classes including property, infrastructure and bonds, shares and alternative investments. This diversity of assets in your super portfolio generally reduces the impact of poor performance in any one asset class, as different assets classes don't tend to rise and fall at the same time. So, if there is a sharp fall in the share market, like we have seen in the coronavirus outbreak, the value of your portfolio won’t necessarily reduce by the same amount.

If you are closer to retirement or already living off your super, you may be having greater concerns. However, your super is still likely to be invested for another 15 to 20 years. Plus, if you are closer to retirement, you may be in a more conservative option, for example, less than 30 per cent exposed to equities, rather than 50 per cent in a balanced portfolio.

Protecting your super

When share markets fall, it’s natural to want to take action to protect your super. In uncertain times, you may be tempted to switch your investments to cash options as it has the lowest market risk and potential for loss.

However, during volatile markets, it’s important that investment decisions are deliberate, measured and driven by data and analysis. Making sudden, reflexive investment decisions driven by emotions such as fear may result in the crystallisation of losses. It’s important to ensure that you don’t sell after large losses and then miss the rebound that typically follows later. Being overweight in cash or other defensive assets is generally not an appropriate asset allocation for a long-term investment such as super. While cash doesn’t suffer negative returns, its value does not usually increase over time and with today’s very low interest rate environment, the level of income is low.

Focus on your long-term goals

History has shown that sticking to your long-term plan gives you the greatest chance of reaching your retirement goals, and ultimately puts you in a better position than frequently changing investment options.

Although your circumstances may change over the years, try to stick to your long-term goals and ignore the fluctuations in the market as these are a normal part of an investment cycle. Immediate reactions to market events might not suit your long-term investment objective to build enough super to live a comfortable life in retirement.

To set long-term objectives, calculate your investment horizon, assess the level of risk you are comfortable with and then choose an appropriate investment plan.

Speak to your financial adviser

While it may be best not to make changes to your super during turbulent times, it could be timely to review your investment options and consider your immediate versus long-term needs and situations.

Navigating this new world of lower returns and increased volatility requires careful planning and expert assistance. Your financial adviser can work with you to design an investment portfolio around your changing circumstances, even during turbulent times. They can help you decide the most suited investment plan and decide the right asset allocation for your needs.

Temporary changes to super in Australia

On 22 March 2020 the Australian Government announced the second of their stimulus packages to support Australia through the economic consequences of COVID-19. As part of this package the government is making two temporary changes to superannuation which are intended to benefit retirees as well as individuals under financial stress. For more information, the Australian Government has made available fact sheets on the different stimulus measures on its website.


For more information about your superannuation, speak to your Morgan Stanley financial adviser or representative. Plus, more Ideas from Morgan Stanley's thought leaders.