Q&A – Investment Market Volatility
These questions and answers may assist with any queries you have with regard to the investment market volatility over the last six months and negative performance on your portfolio reports.
Q: My investment has fallen, is the sharemarket still a good investment?
A: Despite the recent falls in the Australian sharemarket, share prices are still up 20% since the beginning of 2006 and up 90% since the beginning of 2003.
As sharemarkets rise and fall, it’s important not to panic or be distracted from your long term investment goals. These recent negative returns are industry wide.
Seeing your investment growing at a slower rate or even falling in value, particularly as you have seen solid growth of your investment over recent years can be unsettling. This volatility is a normal cycle of investment markets.
If you look at investments over 3 and 5 year terms, market volatility has generally been followed by a record number of good returns, and overall returns are positive.
Q: What happens if I withdraw my investment?
A: It is important to consider the tax impact before withdrawing your investment. Selling your investments will have a capital gains tax impact.
You should also consider the impact that withdrawing your investment will have on your long term investment strategy. Withdrawing after a negative return means that you ‘lock in’ your losses. What this means is that there is no opportunity for that investment to recover any of the losses that it has suffered – once you sell it, the loss is ‘locked in’.
Q: Is superannuation still a good investment option?
A: Superannuation is a long term tax structure, with the underlying investments being a separate investment decision. It is possible to retain your superannuation fund in cash, however, as your superannuation fund is generally a long term investment, it is best to have a proportion of your superannuation fund invested in growth assets, such as shares and property.
Q: Should I still make regular contributions to my superannuation?
A: Making regular contributions to your super fund can significantly change your final super balance and provide you with potential tax savings. A small amount invested regularly can be more effective than larger sums invested now and then. In fact, your regular contribution now is actually purchasing more units in your fund than if they were at a market high price. This means that when the market recovers, you will own more units within the investment.
Q: What is a sub-prime mortgage?
A: A sub-prime mortgage refers to the type of mortgage that is granted to borrowers with lower than average credit ratings. Due to poorer credit ratings, these borrowers tend to be ineligible for conventional mortgages. Higher interest is charged on these mortgages to compensate for the higher risk.
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