The Affects of Market Volatility
When the stock market goes up one day, and then goes down for the next five, then up again, and then down again, that’s what you call stock market volatility.
It’s important to realise that share market volatility is inevitable. It’s the nature of the market to move upwards as well as downwards and while dramatic swings can be unsettling it’s wise to remain calm. Often, the most sensible thing to do during periods of extreme market volatility is to stick with the investment plan you already have in place.
Volatility
Volatility affects investments in super because they are generally invested in world markets. This means that the sentiment that drives shares up or down will have a similar impact on super funds.
Diversification
Diversification - or not keeping all your eggs in one basket - is important for your super funds. In a diversified super or investment fund, diversification across the major asset classes - being cash, fixed income, property, shares and alternative investments - is designed to provide investors with an exposure to different types of assets that have different reactions to certain market conditions. This can help spread the volatility of returns. In general, this reduces the impact of radical changes in specific markets or assets.
