Hold on tight as the world keeps spinning
Investments | 15/11/2016 |
2 min read
Investment markets have bounced along a pretty bumpy course in this financial year. It’s pretty understandable, as investor uncertainty merely reflects the unpredictability of international events and mixed signals within the global economy.
The two most unexpected events for markets have, without doubt, been the surprise ‘Brexit’ vote and the election of political outsider, Donald Trump, in the US presidential poll. These two events have not necessarily reflected sluggish economies. In fact, the UK economy is one of the redeeming pictures in Europe and the US economy has been showing some robust health of late.
What they have shown is that the economic benefits of globalisation have been distributed unevenly, opening the gap between wealthy and poor, compressing the middle class, and causing major dislocation within traditional industry sectors, like manufacturing, that used to form the backbone of these economies.
And there is possibly more political upheaval to come, with two European economic powers, France and Germany, going to the polls in 2017. As in Britain, immigration and jobs are likely to have a big influence on the outcome of those elections.
So how will these events and on-going uncertainty impact on your super? The answer is that we’re in for an extended period of uncertainty about what asset classes – shares, property, bonds and others – will perform best over the short term. Investment experts all over the world are waiting for greater clarity on a number of things, including:
• The final shape of economic policy under a Trump presidency and how that will be negotiated through the Congress, albeit with Republicans in control of both the House and the Senate
• The future of interest rates here and overseas. The direction is likely to be up, but by how much and when is uncertain
• The on-going emergence and health of the Chinese economy and the implications for the Australian economy
• Political and economic stability in Europe and the future of the European bloc
• Geopolitical uncertainty due to unresolved conflicts and tensions, principally in the Middle East, Ukraine, South China Sea and Korea.
In Australia, there are other important challenges for super funds members. The new, lower assets test thresholds have been legislated and take effect from 1 January 2017. These will affect many Australians planning their retirement, increasing the government pension for some, but reducing it for others.
Additionally, the government is introducing long-awaited legislation into Parliament to change contributions thresholds and other rules applying to super. With the Labor opposition wanting further changes and the challenge of securing support from the Senate cross benches for the legislation, its passage in its current form is by no means assured.
Making smart investment choices and planning retirement is therefore fraught with complexity for most people.
For younger fund members, super is an investment over many decades, so short-term volatility in investment markets is not a major issue. For those approaching retirement, the investment horizon is relatively short-term compared to those just starting out on their superannuation journey. They are more exposed to risks such as finishing work and cashing in their super investments when asset prices are at their lowest.
To help protect against these risks, there are a few things that you should consider if approaching retirement:
• Ensuring your super investments are diversified, that means they are spread across a number of asset classes. The diversified options offered by your super fund should give you a choice of how aggressively or defensively your super is invested, but the key thing is that they are diversified. It’s similar to hedging your bets so that when one asset group, like shares, goes down, other, more defensive assets, might increase
• If you’re not confident about making the right investment choice, get good advice from a professional financial planner
• Definitely seek advice for retirement planning. It’s one of the best investments you’ll ever make if your planner is well-qualified and you trust them to act in your best interests.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the relevant Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383.