Markets reward those with a steady hand
Share markets in February continued the strong performance experienced in January with the S&P/ASX 300 index climbing 9.3% since the start of 2019. The ongoing strength has been in part due to an extension of the halt in new tariffs imposed by the US on China, helping to ease some of the trade tension between the two countries. The threat of rising interest rates in the US has also lessened, further supporting share prices. Higher interest rates are largely seen as a negative for share prices as higher rates make it more expensive for companies to borrow money and slow economic growth, directly impacting profits.
During 2019, share markets globally have rebounded quickly, approaching the highs reached in 2018 as shown in the graph below. Notably, this rebound has occurred in an environment of weakening global economic growth, which highlights how important central bank policy is to market sentiment.
The rapid nature of this rebound highlights that switching out of an investment option based on short term market movements can be costly. For example, the graph below* illustrates the potential longer-term impact of a member switching out of the Growth (Cbus MySuper) option into a more defensive option during a period of even higher volatility 10 years ago.
*These figures are for illustration purposes only and do not take into account administration fees, insurance or contributions. Calculations are based on historical monthly Cbus investment option returns from 31 January 2008 to 28 February 2019, switching on 31 March 2009 with a super account balance of $100,000. Past performance is not a reliable indicator of future performance.