Zest! / SUPER 101

Performance cycles and comebacks

Investment markets, like sports stars and music icons, can return to their peak after dips in performance. Managing emotions throughout the cycle can be the real test.

By Emma Barrett - 4 min read

A little about Emma

Emma is the Director, Member Services for Russell Investments. She is responsible for the development and delivery of the member proposition, focusing on encouraging members to engage with their super so that they achieve better retirement outcomes.

The world teaches us that there is always room for a good comeback. From global sporting greats such as soccer legend Pele and basketball star Michael Jordan, to music icons such as Fleetwood Mac, Santana, and John Farnham, celebrities can return to greatness after exiting the spotlight.   

You could say the same about your superannuation. It continues to be one of the easiest ways to save for your retirement future, but the way super is invested can make a big difference to the way it grows.   

At the same time, recent events show that investment markets can be quite volatile—up one day and down the next, always moving through cycles. And like all good comebacks, returns falter, but sooner or later stronger performance usually returns.   

Volatile markets and volatile emotions 

Of course, this kind of volatility can be a real test in patience, but as we’re often told, ‘good things come to those who wait.’ It’s a little like a loyal fan who holds out for their hero’s return to the stadium or stage.   

The real challenge is managing to stay focused on the big picture while you wait for events to calm down. And as you get closer and closer to retirement, it’s easy to feel anxious, as you see market volatility impacting your retirement savings, no matter how short term. It’s easy to feel pressured by endless news cycles with a thousand ‘expert’ opinions, pulling you in different directions.   

We also understand that depending on your timeframe to retirement, you may or may not be in a position to ride out periods of volatility and experience the recovery before it’s time to access your super savings. There’s no single ‘right thing to do’ but it’s not all lost hope either.   

As your super fund—backed by the global investment expertise of Russell Investments—we’re here to help you stay focused on your retirement income goal and keep your super savings on track through volatility. 

From euphoria to despondency, the cycle continues 

The first step is to understand and acknowledge how emotions can influence investment decisions. The Russell Investments cycle of investor emotions is a useful tool that breaks down the emotions you are likely to experience through different phases of the market.  

Performance cycles and comebacks 

At the market’s peak, as a super investor, you may feel euphoric and expect the strong performance to continue forever.   

The danger? This may lead you to make riskier investment decisions than are appropriate for your personal circumstance. For example, you may overestimate your appetite for risk and choose to shift your super into higher growth options, when more defensive investments may be more appropriate given your shorter timeframe to retirement.   

Of course, market rises do not go on indefinitely, and as they cool down, your feelings may swing. Initially, you may deny returns are weakening, but as the downturn progresses, you may become anxious, even fearful. The danger? An instinctive reaction to withdraw to avoid the pain of investment loss. But by doing this, you could be cementing the losses into your portfolio. By selling investments that have fallen in value, you may be eliminating the chance to recoup those losses if the investment’s value subsequently recovers.  

Lean on us 

As loyal fans wait for comebacks, they lean on each other to find comfort. Similarly, as your super fund, you can lean on us to take care of your super investments.   

The Russell Investments philosophy remains solid, and our investment approach is focused on the medium to long-term investment objectives of members like you. The construction of our diversified investment portfolios make sure that we remain well balanced and diversified across various asset classes, industries and regions.  

Our investment experts closely monitor market movements, assess portfolio risks and fine-tune portfolio positions. We have trading operations in all major time zones so can move quickly if required. Our global team of economists, strategists, analysts and portfolio managers have lived and learned through many market cycles and volatility events and are well prepared to manage your super in all market conditions.   

Of course, there’s not much anyone can do to control market forces, but what you can control is how you react to the volatility. As we like to say, you can’t stop the wave, but you can learn to surf! We’ll show you how.  

Take back control

Let’s look at some steps you can take.  

  • Select an investment strategy that is appropriate to your risk tolerance, time to retirement and retirement income goal. That’s a win it itself. 
  • Watch out for common behavioural pitfalls:   

    • Overconfidence – overrating your ability to select winning shares is never a smart move  
    • Loss aversion – a loss can cause about twice as much pain as a gain causes pleasure 
    • Chasing past performance – abandoning a well-diversified portfolio for bonds, or even cash, may jeopardise your future financial security 
    • Timing the market – a feat no one has been able to master, not for the long term anyway  
    • Failure to rebalance - the risk/return characteristics of an your super investment should be independent of what’s happening in the market. 
  • Challenge yourself to stick with decisions that have been made with your retirement income goal in mind to avoid making poor decisions which you may come to regret in the long term. 
  • Talk to us – we offer phone-based investment choice advice at no cost.  
  • Talk to an expert such as a financial adviser who can tailor an investment strategy based on your particular circumstances – we can refer you to the appropriate person.  
  • If that’s all too much to think about, leave it with us. We do have the perfect solution: GoalTracker®, a program designed to build your super and investments around you. What’s more, GoalTracker® Plus allows us to further personalise your investment strategy based on your retirement income goal.  

Even in the lead up to retirement, you still have some years left for your super savings to grow. If history is anything to go by, between now and then, there’s bound to be plenty of volatility—and with it plenty of opportunity to hold out for a comeback.   

Issued by Total Risk Management Pty Ltd ABN 62 008 644 353, AFSL 238790 (TRM) as trustee of Russell Investments Master Trust ABN 89 384 753 567. Nationwide Super and Resource Super are Divisions of the Russell Investments Master Trust. The Product Disclosure Statement (‘PDS’), the Target Market Determinations and the Financial Services Guide can be obtained by phoning 1800 555 667 or by visiting russellinvestments.com.au or for Nationwide Super by phoning 1800 025 241 or visiting nationwidesuper.com.au. Any potential investor should consider the latest PDS in deciding whether to acquire, or to continue to hold, an investment in any Russell Investments product. Russell Investments Financial Solutions Pty Ltd ABN 84 010 799 041, AFSL 229850 (RIFS) is the provider of MyTracker and the financial product advice provided by GoalTracker® Plus. General financial product advice is provided by RIFS or Link Advice Pty Ltd (Link Advice) ABN 36 105 811 836, AFSL 258145. Limited personal financial product advice is provided by Link Advice with the exception of GoalTracker® Plus advice, which is provided by RIFS.

This communication provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. If you'd like personal advice, we can refer you to the appropriate person. This information has been compiled from sources considered to be reliable but is not guaranteed. Past performance is not a reliable indicator of future performance. To the extent permitted by law, no liability is accepted for any loss or damage as a result of reliance on this information. This material does not constitute professional advice or opinion and is not intended to be used as the basis for making an investment decision. This work is copyright 2022. Apart from any use permitted under the Copyright Act 1968, no part may be reproduced by any process, nor may any other exclusive right be exercised, without the permission of Russell Investments.