Understanding Investment Market Cycles

Understanding how investment market cycles work can show why a long-term view may be helpful when it comes to your super.

Let’s start by looking at the five key phases of an investment market cycle.

1. Early Upswing
   This phase comes after the market has bottomed out, which is also the last phase of a cycle. The market is starting to recover, and prices are rising again.
2. Bull Market
   Investor confidence is high and prices are rising faster than average over a consistent period. There can also be periods of strong economic growth, with potential for greater earnings.
3. Peak (Top)
   Prices are at their highest, with investment confidence starting to level out. Investors start to think about when to exit the market by selling.
4. Bear Market
   The market experiences a period of falling prices, which can be driven by negative investor sentiment and a poor economic outlook.
5. Trough (Bottom)
   Prices and investor sentiment are at their lowest.

After one full cycle finishes it starts again with the ‘early upswing’ phase. We can also see that market fluctuations are part of the cycle.

While changes in your balance can be worrying, market fluctuations are normal. That’s why keeping a long-term focus is important. 

How long is a full market cycle?

There’s no set period in moving through each stage. This is because each phase of the cycle can vary in length, sometimes lasting weeks or even years.  Different stages can be affected by economic and socioeconomic factors such as trade issues, interest rates, investor sentiment and pandemics.

How market cycles affect asset classes

Different asset classes, such as shares and unlisted property, can respond differently to the underlying factors that affect each phase of the market cycle. This is usually associated with the amount of risk of each type of asset and how individual assets respond to economic conditions.

Historically, higher risk investments like shares tend to perform well in a bull market but have lower returns in a bear market when compared to more defensive assets such as fixed income and cash.

Having a diversified portfolio could help reduce volatility for investment returns and positively impact your super balance.

AustralianSuper’s investment approach

Our global investment team looks at economic and investment data to better understand how different asset classes are likely to be impacted through each stage of the market cycle.

By forecasting the next phase of the cycle, we can adjust the portfolio to take advantage of investment opportunities and manage risk. Both return and risk objectives are considered, ultimately looking to grow members’ retirement savings over the long term.

While changes in your balance can be worrying, market fluctuations are normal. That’s why keeping a long-term focus is important. 

Just making decisions based on short-term considerations — like switching investment options or withdrawing your super early — could have a significant impact on how much super you’ll have when you retire. 

To learn more about our investment performance, visit australiansuper.com/compare-us/our-performance.

^{This information may be general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement available at australiansuper.com/pds or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/tmd.}

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