Q&A - Market Volatility 2022
18 August 2022
What has caused the recent market downturn?
There has been a swing in share market behaviour in 2022 compared to 2021. Investor confidence in the share market has taken a hit, driven by factors such as:
• High and rising inflation following spikes in energy, food, and other commodity prices
• Rising bond yields, and expected increases in cash rates
• The war in the Ukraine and rising political tensions between the US, Russia, and China
• A large drop in sentiment around technology companies and their growth prospects.
What is BUSSQ doing during this period of market volatility?
It is unfortunately impossible to eliminate the ups and downs that we see in financial markets, so to help manage risks during such difficult times we maintain a diverse portfolio of investments within our pre-mixed options. This diversification is designed to help provide some cushioning of downturns in times of volatility.
What does the market volatility mean for you?
Periods such as this, where returns are negative, are painful to experience and we understand the stress and tension that such returns can create. A danger during such periods is losing confidence in a solid, long term investment strategy, and making a change to hold an asset that may feel safer, such as cash. Even a 65 year old member, with an average life expectancy of 15-20 years^, is still a long term investor.
Holding cash over such long time periods is less likely to lead to successful retirement outcomes compared to taking a diversified approach to your investments. Market downturns like this do happen, with the most recent following the outbreak of COVID-19 in March 2020. On each occasion, markets eventually recover their losses and go on to achieve new highs.
The graph below shows the volatility in markets from 1994 to now. It's possible to see that over time, markets recover from each correction. If you aren’t invested when those recoveries occur, then you might end up bearing the pain of the losses without any of the benefits of the eventual recovery, whenever that might occur. Timing these events is extremely difficult, even for investment professionals.
How can we help you?Everyone has different personal circumstances and the impact of a market downturn is different for each of our members. If you have questions about your current investment strategy or if you’re thinking about switching investment options due to market volatility, we encourage you to talk to us before doing so.
Seeking personal advice from a Financial Advisor is also a sound approach and can be a source of comfort and strength during stressful times. As a BUSSQ member you have access to personal financial advice on investment choice at no extra cost*. Call us on 1800 692 877.
^abs.gov.au/statistics/people/population/lifetables/latest release. *Personal advice is limited to BUSSQ products and is advice on insurance, investment choice, contributions, and retirement. The cost of this advice is included in the BUSSQ Trustee related costs, and this advice is provided by Link Advice Pty Ltd (ABN 36 105 811 836, AFSL 258145). #Source: https://www.wsj.com/market-data/quotes/index/SPX/historical-prices