As we enter the final month of Autumn, the focus has been on the Federal Budget and interest rates.
April certainly brought a sharper edge to the economic outlook with the Middle East crisis, inflation, volatile markets and fragile consumer confidence continuing to weigh heavily on investors.
The sharp increase in petrol prices fuelled a jump in inflation for March to 4.6%, the largest jump in three years. Underlying price growth was steadier, with trimmed mean inflation holding at 3.3%, although still exceeding the Reserve Bank’s target range of 2-3%. Opinions are currently split on where interest rates are heading.
In the US, the Federal Reserve voted narrowly to keep rates on hold despite worsening economic conditions.
The ASX 200 was sliding downwards towards the end of the month with the Australian dollar also weaker but still trading near four-year highs
The latest Westpac–Melbourne Institute survey showed sentiment falling, highlighting growing pressure on household budgets from fuel and borrowing costs.
Oil prices continued their stellar climb with Brent crude now at its highest level since 2022.
Retirement income options when markets are volatile
The income assumptions many have carried into retirement are being tested in the current economic climate.
Markets have lurched from one direction to another; interest rates have lifted faster than expected, with the possibility of more increases in the months ahead, and there’s no end in sight to the global uncertainty.
While the market shocks are interspersed with periods of relative calm, The Reserve Bank of Australia (RBA) warns that the disruption could pose challenges to our financial stability.i
Nonetheless, the RBA says Australia is “well placed” to handle the uncertain times.
For those heading into retirement and focused on income security rather than speculation, having a clear view of the different retirement income options can help.
Account-based pensions
One of the most common retirement income options is an account-based pension, often started using superannuation savings. Your money stays invested, and you draw a regular income from the account, choosing the payment amount (subject to minimum annual withdrawals set by law) and the investment mix.ii
The appeal here is flexibility. You can adjust payments and investment options, and the remaining balances can be left to beneficiaries in your will.
On the other hand, account-based pensions are directly exposed to market movements. So, when markets fall, your account balance may be affected. That could reduce your future income particularly if you continue withdrawals during a market downturn.
The risk is most significant in the early years of retirement. Losses combined with regular withdrawals can permanently reduce how long savings last, a challenge known as sequencing risk. Understandably, many retirees respond by spending less than they could afford, even when markets recover, simply to avoid the fear of running out of money later in life.iii
The income assumptions many have carried into retirement are being tested in the current economic climate.
Markets have lurched from one direction to another; interest rates have lifted faster than expected, with the possibility of more increases in the months ahead, and there’s no end in sight to the global uncertainty.
While the market shocks are interspersed with periods of relative calm, The Reserve Bank of Australia (RBA) warns that the disruption could pose challenges to our financial stability.i
Nonetheless, the RBA says Australia is “well placed” to handle the uncertain times.
For those heading into retirement and focused on income security rather than speculation, having a clear view of the different retirement income options can help.
Account-based pensions
One of the most common retirement income options is an account-based pension, often started using superannuation savings. Your money stays invested, and you draw a regular income from the account, choosing the payment amount (subject to minimum annual withdrawals set by law) and the investment mix.ii
The appeal here is flexibility. You can adjust payments and investment options, and the remaining balances can be left to beneficiaries in your will.
On the other hand, account-based pensions are directly exposed to market movements. So, when markets fall, your account balance may be affected. That could reduce your future income particularly if you continue withdrawals during a market downturn.
The risk is most significant in the early years of retirement. Losses combined with regular withdrawals can permanently reduce how long savings last, a challenge known as sequencing risk. Understandably, many retirees respond by spending less than they could afford, even when markets recover, simply to avoid the fear of running out of money later in life.iii
The Iran war and markets: Keeping perspective amid uncertainty
There’s a particular kind of unease that creeps in when market headlines start mixing geopolitics with talk of oil prices and recessions. That feeling has been hard to avoid, as the escalating war in the Middle East spooked global markets and brought fresh uncertainty to an already fragile economic landscape.
For investors, watching so many forces moving at once and volatile numbers, there can be a strong temptation to “do something”.
Before reacting, a good understanding of what’s driving market movements is useful to assess the short and medium term. More importantly, it helps to work out how your long-term strategy fits in.
Energy markets have felt the most immediate effect of the conflict pushing oil and gas prices ever higher.
Global share markets also responded quickly to the crisis with sharp falls and volatility.
The conflict has come at a time when the global economy was already fragile.
Adding an energy price shock into the mix increases the risk that higher costs slow spending and investment.
In Australia too, there’s increasing talk of recession – as much as a 30 per cent chance within the next 12 months, according to AMP.i
However, Treasurer Jim Chalmers disagrees saying that, while the economy is expected to take a “sizeable hit”, a recession is not expected.ii
The immediate effects
Market volatility is likely to continue with sharp price swings as the markets react to either good or bad news coming out of the Middle East.
For households, the most visible impact is likely to be at the pump and in their power bills. Widespread price rises here are likely to affect consumer confidence and spending patterns.
So-called “safe-haven” assets such as cash, government bonds and some currencies often benefit during uncertain times as investors look to defend their portfolios, however bond yields have experienced volatility as investors assess the evolving situation in the Middle East.
Gold was also once on the list of safe havens. But, during the most recent crisis, its value has plunged nearly 15 per cent during the month. Nonetheless the price remains high – up by almost 300 per cent over the past decade.iii
While there’ll be plenty of market “noise” ahead, it’s important to remember that short‑term market reactions may be driven as much by emotion as by fundamentals. Fear, uncertainty and rapid shifts in sentiment often exaggerate price moves in the early stages of a crisis.
Looking further ahead
Looking beyond the immediate panic, the medium term (the next six to 18 months) will depend on how the world adapts to the energy prices shock.
Continued high oil prices can have several effects:
- Inflation pressures may linger
- Economic growth and corporate earnings may slow
- Long‑term opportunities may be created by the market disruptions
It is also worth remembering that energy shocks don’t last forever. Markets adapt, alternative supply routes emerge and prices eventually reflect new realities. The timing is uncertain, but history suggests that economies and markets are more resilient than they often appear in the heat of the moment.
Strategy over fear
Perhaps the most important thing to remember right now is that your financial plan was built for times like this.
Sound financial planning anticipates that markets will be periodically disrupted by wars, pandemics, financial crises and recessions.
The discipline required in moments of market stress is to distinguish between short-term fear and long-term strategy. Fear says: sell everything and wait for calm. Strategy says: stay invested, stay diversified and if anything has changed, let’s talk about it properly.
If the events of last month have raised questions for you, we’re here to help you navigate with confidence. Please give us a call.
i Fuel surcharges are adding to consumers’ financial stress | ABC News
ii Chalmers says there is no ‘expectation’ of a recession | The Guardian
iii Gold is meant to be a ‘safe haven’. Why is it crashing? | The Conversation
Keeping your cool when the markets heat up
Investing isn’t just a numbers game. It’s an activity that stirs various emotions from hope and optimism to fear and anxiety.
Whether the ASX is surging or stumbling, emotional responses to market movements can shape outcomes just as much as economic fundamentals. Understanding those responses is crucial to building resilience, especially in unpredictable times.
These patterns underscore the importance of long-term perspective, especially in a market shaped by both global sentiment and uniquely local factors.
How emotions enter the equation
We like to think our financial decisions are rational, but the truth is more complex. Investors aren’t robots crunching numbers in isolation. We are influenced by news cycles, cultural values and personal stories from friends, family and colleagues.
When markets rise, euphoria and FOMO can drive hasty buying decisions. During downturns, anxiety and regret can push investors to sell at a loss, despite having sound long-term strategies.
This pattern has played out across decades, from the dot-com bubble to the COVID recovery. And remember that emotional investing isn’t just a beginner’s problem. Even seasoned investors can be swept up by sentiment if safeguards aren’t in place.
Psychologists have long observed how financial stress activates similar responses to physical threats, triggering fight-or-flight instincts rather than thoughtful analysis. That’s why even well-informed investors may react defensively when facing market instability.
The good, the bad and the balancing act
Emotional investing isn’t all risk. In the right conditions, it reflects conviction, clarity and purpose. For example, values like patience and belief in the future can help investors stay committed during market dips.
Life changes such as home ownership, welcoming a child or retirement can bring useful emotional clarity to financial decisions. And ethical investing often stems from emotions such as care and connection to community.
When used with discipline, emotions can reinforce sound decisions rather than undermine them. Investors who use emotional clarity to establish long-term goals tend to feel more confident, even when short-term volatility strikes.
That said, emotions can also derail strategy. Panic selling during downturns, overconfidence after gains and herd mentality all pose risks.
The 2022 market correction saw many Australians pull out of super investments prematurely, missing the rebound that followed. These reactions stem not just from fear but also from a desire to act, even when patience may be more effective.
Learning from behavioural finance
Behavioural finance gives us tools to interpret emotional reactions. Biases like loss aversion, recency bias and anchoring affect decision-making in subtle but powerful ways.
These include:
- Loss aversion – People often feel the sting of losses more intensely than the joy of equivalent gains, which can lead to overly cautious or reactive choices.
- Recency bias – Recent events weigh heavily on perceptions, leading investors to expect trends will continue simply because they’ve just occurred.
- Anchoring – Fixating on a past portfolio value or arbitrary benchmark can skew rational assessment.
Recognising these tendencies helps investors avoid knee-jerk decisions and design portfolios that stay aligned with goals over time. It’s not about eliminating emotion; it’s about becoming aware of how it operates and mitigating its effects through smart responses.
After all, markets are always shifting. Emotions will always emerge. The goal isn’t to shut them out, but to understand them and develop structures to keep emotions from steering the ship. When investors learn to pause, reflect and act with intent, they not only improve outcomes but feel more confident in their journey.
If you’d like to explore strategies to build emotional resilience in your portfolio, or tools to help remove bias from investment decisions, please give us a call.