What is ‘Market Volatility’ and how does it affect your super?

When we talk about your superannuation investments, we often use the term ‘market volatility’. That’s because it affects how your money is performing more than almost anything else.

What is market volatility?

Market volatility refers to the frequency and the scale of stock market movements, both up and down. The bigger the price swing, and the more frequent, the more ‘volatile’ the market.

Because super funds are investors in share markets, we’re affected by these movements. In fact, just about everybody is. You could be a big-time venture capitalist or a personal investor buying up cryptocurrencies – either way, market volatility will affect the value of your investments.

Is volatility always bad?

No. Volatility describes periods of unpredictable market movement – but not the direction of that movement. So, in theory, it could be a sudden jump in prices that adds value to your investment.

However, we do talk about volatility more often when markets are falling. This is because, when things go badly, it tends to happen more quickly off the back of an unexpected event, or an expected event that the share market is concerned about. In comparison, periods of growth are generally sustained over a longer timeframe.

One upside to volatility when markets are falling is that stocks will cost less to purchase. So, while your balance may stall or go backwards in the short term, it is an opportunity for us to buy up assets, essentially at a discount, and make money off them in the future.

What causes market volatility?

Above, we talked about expected and unexpected events causing volatility. And in fact, the list of factors that can affect stock market trends and volatility is nearly endless.

There are many day-to-day factors that can cause stock market jitters, like a company releasing a report showing its earnings weren’t as high as anticipated, or a well-known analyst or CEO making a prediction on Twitter.

And of course, more significant events around the world are felt by share markets. Currently, rising inflation and ongoing supply chain issues mean investors are feeling pessimistic, and share prices are reflecting that.

How much volatility is normal?

There are different, complicated ways of measuring market volatility, but instead of asking ‘how much volatility is normal?’ it’s more helpful to simply tell yourself: ‘volatility is normal’.

In fact, since World War 2 there have been 27 market corrections*. Corrections happen when the share market has risen steadily for a while, and then something happens that causes investors to reassess, and the share market to ‘correct’ down to this new reality.

Historically, the market has always recovered from these declines. Depending on the reason, recovery can take as little as a few months – such as COVID-19 – to a few years – like the Global Financial Crisis. As super is a long-term investment, these timeframes for recovery are easily absorbed when your balance has decades of time in which to grow.

We’re here to help

We know falling share markets can be stressful, but volatility is a natural part of investing. Just as natural as when share markets are rising.

However, if you are worried about your super, or you’re planning to make changes, we’d encourage you to speak to us first. Contact us by phone or email, and we’ll put you in touch with the right person to help you, whether it’s our Member Services Team, our Financial Planning Team, or one of our regional Coordinators.

*Source: Forbes Advisor, forbes.com. As measured by S&P 500, one of the world’s largest indices.

Past investment performance is not a reliable indicator of future performance.

Issued by First Super Pty Limited (ABN 42 053 498 472, AFSL 223988) as Trustee of First Super (ABN 56 286 625 181).

This publication contains general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and read the Product Disclosure Statement (PDS) before making any decisions. You can obtain a PDS by calling 1300 360 988 or visiting firstsuper.com.au/pds. Target Market Determination (TMD) is available at firstsuper.com.au/tmd.