2022 market downturn: FAQs

There are several factors pushing down the value of investments, which are affecting all investors and superannuation account holders in Australia.

The pandemic and Russia’s invasion of Ukraine are disrupting the supply of goods and raw materials, but demand remains high, which is causing prices to rise quickly. In response, central banks are quickly raising interest rates to try and cool demand to ease pricing pressure.

With interest rates increasing for the first time in years, investors are fearing the impact on companies and economies, resulting in aggressive selling of assets (such as shares) they consider to be at risk. This is lowering the value of those assets.

The recent decline in valuations is why your superannuation balance has fallen during the 2022 financial year.

• We’ve got more explanation here: Why is the value of investments falling?

When people see their super falling in value it’s tempting to switch to an investment option that’s performing better. But often that creates a worse situation for the member.

Typically, members switch after they’ve noticed loss in value. When they do, they ‘lock in’ the losses they’ve made, because people don’t switch back until they really notice values rising, by which time they’ve often missed out on much of the recovery of their previous option.

For example, many super members reacted to the falling sharemarket (driven by the Covid pandemic) in early 2020 by switching investments to a ‘safer option’. But they delayed switching back when the sharemarket rebounded, missing out on gains, ending up worse off than if they’d done nothing.

• Think carefully about switching options, and if you have any doubts seek guidance from a smartMonday smartCoach or financial adviser.

It’s not possible to tell how financial markets will behave in the short-term. Any improvement in super performance will depend on several factors:

— how aggressively interest rates keep rising
— whether very high energy prices affect economies recovering from the pandemic
— whether consumers keep spending as living costs increase
— whether the pandemic crisis is truly behind us.

In anticipation of the recent downturn, smartMonday was investing in alternative assets and unlisted property to provide protection from any further inflationary surprises. More recently we have reduced allocations to shares as conditions become less supportive, while remaining active in the search for new investment opportunities where we see long-term value.

As superannuation is a long-term investment, we know from experience that while periods of market volatility can be unsettling, they also create new investment opportunities.

We don’t know if we’ve reached the bottom of the market downturn or not, but we do know that many assets are lower in price now than they were six months ago, which means your investment dollar goes further.

If you can contribute, then consider if it’s the right thing for you to do now. It is important for members to remain focused on long term investment objectives and remain aware that short-term returns can sometimes see violent swings.

• We’ve got more explanation here: Grow your super