Few words in finance trigger as much anxiety as “negative return.” Whether you’re a new investor or a seasoned superannuation member, seeing your portfolio shrink can be unsettling. But negative returns aren’t the end of the road—they’re a normal part of investing, especially in times of economic change like Australia is experiencing in 2025. Let’s unpack what negative returns mean, why they happen, and how you can navigate them with confidence.
What Is a Negative Return?
In simple terms, a negative return occurs when an investment’s value at the end of a period is less than its starting value. For example, if you invested $10,000 in a share fund at the start of the year and it’s worth $9,400 twelve months later, your return is negative 6%. Negative returns can apply to superannuation, shares, property, or even cash investments after inflation is factored in.
Key causes of negative returns in 2025 include:
- Market volatility: Ongoing global tensions and changing interest rate policies have made share markets more unpredictable.
- Interest rate hikes: The RBA’s 2024 and early 2025 rate increases have pressured growth assets, especially property and tech shares.
- Inflation: While inflation has eased from its 2022/2023 highs, it still erodes real returns, especially on cash and fixed-interest products.
How Negative Returns Impact Different Investors
Not all negative returns are created equal. The impact on your finances depends on your investment horizon, risk profile, and asset allocation.
- Superannuation members: Many Aussies saw their super balances dip in 2022 and again in late 2024, mainly in growth and high-growth options. However, super is a long-term game—periods of negative returns are generally offset by years of positive growth.
- Retirees: For those drawing down their savings, negative returns can be more concerning. Sequencing risk—suffering losses early in retirement—can mean less money to last through retirement. Strategies like “bucketing” (keeping several years’ expenses in cash or defensive assets) can help mitigate this risk.
- Property investors: Australian property prices have cooled in some cities in 2025, with high interest rates and affordability challenges driving values down in certain segments. Negative returns here may be temporary, but highly leveraged investors should watch their cash flow and loan-to-value ratios.
Example: The ASX200 returned -3.7% in the 2024 calendar year before rebounding in early 2025. Balanced super funds posted a modest negative return in 2024, but most have still averaged over 6% p.a. for the past decade.
Managing and Responding to Negative Returns
Experiencing a negative return is no reason to panic. History shows that markets recover, and well-diversified investors are often rewarded for their patience. Here’s how to respond constructively:
- Review, don’t react: Resist the urge to sell investments after a loss. Locking in losses can be far more damaging than riding out volatility.
- Rebalance your portfolio: Negative returns can shift your asset allocation. Review your mix of shares, property, bonds, and cash to ensure it still matches your risk tolerance and goals.
- Focus on the long term: Super funds, managed funds, and even ETFs are designed for long-term growth. One bad year doesn’t erase years of positive compounding.
- Consider opportunities: Down markets can provide entry points for new investments at lower prices. Dollar-cost averaging—investing a fixed amount regularly—can help you take advantage of market dips.
- Seek professional advice if needed: If you’re approaching retirement, have a short time horizon, or feel uncertain, talking to a financial planner can help you create a strategy to manage risk and drawdown.
2025 Policy Update: The Australian government’s 2025 “Retirement Income Covenant” review has led to new default investment pathways for retirees, aiming to better manage sequencing risk and volatility in super drawdowns.
Conclusion: Staying Calm Through the Cycle
Negative returns are a fact of life for anyone investing in growth assets. By understanding why they happen and how to respond, you can avoid knee-jerk reactions and stay focused on your long-term goals. 2025’s market challenges are real, but history shows that patience and discipline pay off. Review your strategy, keep perspective, and remember: every setback is a setup for the next recovery.
