In recent days we’ve seen significant volatility in investment markets – especially in global share markets. There were falls of around 4% in markets overnight on Monday, a bit of a rebound on Tuesday and Wednesday and then falls again overnight on Thursday.

Ironically, the catalyst for these falls seems to be the release of some strong economic data in the United States. That data showed that the US economy was growing strongly and there had been significant creation of new jobs. It also showed that employees’ wages had begun to increase at a greater rate. This news caused investors to become concerned about two things:

First of all, they were concerned that higher wages and a stronger economy would lead to inflation and higher interest rates, and second of all they were concerned that higher wages would reduce the profitability of companies. And because of this, investors began to reduce the prices they were prepared to pay for shares.

While the dip can seem scary, it’s important to put these moves in context. During all of 2017 and the first month of 2018, share markets increased very strongly. In fact global markets were up by more than 20% over this period. Not only that, but there was also very little volatility. For example the US share market went up every single month in 2017. This was unusual, because we typically have at least a couple of down months every year. So, to some extent, the falls that we’ve seen in recent days are simply clawing back some of the extraordinary gains made in the prior period, and returning the share market back to its more usual pattern of delivering both positive and negative returns.

Although the value of shares has declined quite sharply over the last week, when we look at shares through a longer term lens, we see that they have consistently delivered strong returns, despite having periodic negative episodes. This variability in returns is an expected and inevitable part of investing shares – in fact, it is the reason why share investors tend to do much better than investors in less volatile assets over the long term. The risks are greater, but so too are the rewards. We have seen many other periods during which the value of shares have fallen and we’ve also consistently seen the market recover over time.

TelstraSuper uses a number of strategies to manage the risks of shares. First of all, we build diversified portfolios – we aim to ensure that our portfolios have a range of different assets so we are not overly reliant on shares as the drivers of growth in our portfolios. We also use professional investment managers to build our share portfolios and to make them more resilient. We also actively manage our exposures to shares. For example – towards the end of last year, as the prices of shares continued to rise we began to reduce our share exposure and to convert some of the gains we’d made into cash. These changes were relatively moderate, but they have meant that our portfolios started this month with fewer shares and more cash than usual.

Of course, we’re continuing to monitor the current situation, but our current view is that what we’re seeing in the usual pattern that share markets follow. We’re not making big changes to our strategy in response to the current market conditions. This is because we are focused on the long term and we are confident that we have right settings in place to continue generating strong long term outcomes for our members.