The Global Financial Crisis and its effects seems to have dominated our newspapers and electronic media for much of the past two years.
What does all this mean and, more importantly, how has this investment market volatility affected your superannuation account?
Click here to view the Fund's Crediting Investment Rate over the last five years.
Please note: These rates are superannuation accumulation fund returns. As the investment returns for the Income Streams are not taxed, these will differ slightly.
An interim rate is calculated to enable benefits to be paid during the year. These rates can be found here.
While they provide an indication of the Fund's returns, these rates are only applied when calculating benefit payments and benefit quotes.
If you are a member with an accumulation account, your superannuation is invested according to the strategy set by the Trustee for the option that you have chosen. Please click here for the Member Investment Choice options. If you haven't selected an option, your account will be invested in the default Balanced Growth option. The returns of share markets will have a significant impact on most options as they have a strong influence on other investment markets and most of the Fund's options have a significant allocation to shares.
In general, most financial markets have been affected by the Global Financial Crisis.
Specifically, share markets around the world have been affected by the fallout in the sub-prime mortgage market in the United States and the subsequent lack of debt finance. In very simple terms, investment products that included access to these 'lower quality' loans became worth significantly less as rising interest rates forced some to default on their loan re-payments. These issues affected a number of financial institutions, including banks and other finance providers to the extent that most share markets suffered (and on average lost more than 20% for the last financial year).
In Australia, the share market's performance was driven by the continued impact of the global credit crunch, negative market sentiment, inflationary pressures and the general slowdown in the global economy. While strong commodity demand from countries like China and rising oil prices helped the share price of a number of companies, it wasn't enough to offset other issues. As a result, the Australian market fell by over 25% during the last financial year.
As anyone who monitors the media knows that the impact of the financial crisis flowed through to the real economy led to slower economic growth globally. The United States, Europe and Japan have been in recession and are only now showing real signs of improved economic conditions. All financial markets have been extremely volatile over the past year and this volatility is expected to be with us at least in the short term.
There are significant signs that the worst is behind us. Housing and car sales are up and business and consumer confidence continues to rise. Share markets around the world have risen significantly in the last six months.
Nearly all commentators believe that in investment markets we have well and truly turned the corner. The magnitude of the impact of the Global Financial Crisis means that investors are almost certain to experience some further shocks. A recent example is the effect of Dubai world's announcement that it may delay re-payment of some of its debt.
In the midst of the financial doom and gloom it is important to note that globally governments have taken virtually unprecedented levels of action to restore faith in the financial system and to help improve economic conditions. Central banks and policy makers have responded with large and wide ranging measures that have been designed to ease liquidity and improve credit conditions. Of course the next challenge will be to avoid inflations as financial conditions improve.
The Australian Reserve Bank Governor, Glenn Stevens, while acknowledging that the Australian economy faced significant challenges, has urged Australians to have "quiet confidence" about their future. "We ought to go forward with some quiet confidence in our own abilities and in the opportunities that are on offer", said Mr Stevens in a recent address.
It is entirely up to you if and when you switch options. Members can select the investment option that best suits them in terms of risk, potential returns and investment term - and change as often as monthly.
When deciding on your investment strategy, or plan - be it for your superannuation or life in general, you need to consider your investment time frame. For most, superannuation is a long term investment. For many, it is a lifetime decision as they transfer their superannuation account balances into the Fund's popular Income Streams upon retirement.
Rises and falls are part of investing. While concern is a natural response to volatility and negative returns, it's important to remember that they have been a part of investment markets since they were established.
Taking money out of the superannuation system or changing investment options at this time will crystallise a paper loss into a real loss. There is little doubt that financial markets and investment returns will recover fully at some time, though of course it is not possible to predict how long and what form this recovery will take.
The Trustee, together with its investment adviser (Frontier Investment Consulting) continues to monitor investment developments closely and will make changes as required. However, it should be noted that the asset allocation in each of the Fund's investment options has been selected for its real (or inflation plus) return focus to enhance long term growth.
Therefore, any change will be within the parameters of each investment option's asset allocation range in order to achieve the stated objectives. The asset allocation range and the objectives of each option are found here.