Su­per roller­coaster

The Weekly Advertiser Horsham - - News -

If you pay close at­ten­tion to the value of your su­per­an­nu­a­tion fund, and if, like most peo­ple, your money is spread across the main in­vest­ment classes, you would have no­ticed that your re­tire­ment sav­ings can both rise – and fall – in value.

This can lead to ner­vous times, par­tic­u­larly if you are close to or al­ready in re­tire­ment.

So, what causes these ups and downs, and can you do any­thing about them?

Start with how your fund is in­vested

For the most part, fluc­tu­a­tions in the bal­ance of your su­per fund can be at­trib­uted to the por­tion in­vested in shares, and to a lesser ex­tent, prop­erty.

In gen­eral, the greater the ex­po­sure to the share mar­ket, the greater the volatil­ity – the big­ger the rises and falls – in the value of your re­tire­ment sav­ings. So, what drives share prices?

How much is an in­vest­ment worth?

Let’s com­pare two com­pa­nies, A and B, and the profit per share that they are ex­pected to gen­er­ate: all sorts of is­sues to an­tic­i­pate what a com­pany’s fu­ture earn­ings will be. Some are spe­cific to the com­pany, such as a change in chief ex­ec­u­tive or launch of a new tech­nol­ogy, whereas changes in in­ter­est rates or a jump in un­em­ploy­ment can af­fect the whole share mar­ket.

Opin­ions mat­ter

Aside from hard num­bers, opin­ions count for a lot too. One in­vestor might think that the fos­sil fuel era is com­ing to a close, that the earn­ings of coal and oil com­pa­nies will fall, and their share prices will drop. An­other in­vestor might think that the world will in­crease its de­mand for fos­sil fu­els and ex­pect those same com­pa­nies to rise in price.

It is the col­lec­tive opin­ion of all these an­a­lysts and share traders that set the mo­men­tary price of any given share. The com­bi­na­tion of these col­lec­tive opin­ions on the prices of the shares held by your su­per fund then de­ter­mines how much your re­tire­ment nest egg changes in value.

This doesn’t mean that share price move­ments al­ways ap­pear log­i­cal. A com­pany can re­port a stel­lar profit and still have its share price ham­mered if the mar­ket was ex­pect­ing an even bet­ter re­sult.

What to do?

The im­pact of share price volatil­ity can be mod­er­ated by good diver­si­fi­ca­tion and by al­lo­cat­ing a smaller frac­tion of the port­fo­lio to shares. Just be aware that the lat­ter can also re­duce the po­ten­tial long-term re­turns from your port­fo­lio.

If the ups and downs in the value of your su­per fund are con­cern­ing you, or if you would just like to check if you are still on the right track, your li­censed fi­nan­cial ad­viser will be able to as­sess your sit­u­a­tion and point you in the right di­rec­tion.

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