Aussie superannuation funds are reeling from a market rout that seen the ASX lose 7% this year already. New research from consultancy Chant West shows that super balances fell 2.5% on average across the first six days of 2016.
Granted, not everyone will find they’re down 2.5% on their super. These figures strictly apply to balanced funds, which typically have 61–80% of their capital invested in riskier assets like shares.
If you don’t track your balance regularly, your results may vary. But as a general rule of thumb, the older you are the more conservative your fund is likely to be. If you’re approaching retirement, you probably fared better, at least in percentage terms. At the same time, those moving into retirement are likely to have higher balances. So in real terms, the losses may have stung.
Either way, more conservative funds tend to avoid high growth assets like shares.
Most working age Aussies, who are likely to be in balanced funds, would’ve taken a noticeable hit. That applies particularly to anyone between 30 and 45. People in this group will have accumulated a decent sized balance. With a $100,000 in super, they’ll find their balance some $2,500 smaller than it was two weeks ago.
That may not sound like a huge sum of money. And, in all probability, younger people with their careers still ahead of them aren’t likely to flinch much. But any loss, whatever the amount, is hard to swallow.
Does that mean you should switch to conservative funds? Not quite. No fund option has gone unscathed on the back of the ASX rout.
Take high growth funds as example, which are down 3% over the past 12 months. These funds are usually harder to generalise as they cater to risk taking clients. That means graduates starting work are as likely to be in a growth funds as a soon-to-be retiree using a self-managed super fund. It all depends on the individual, and the extent to which they control their super.
Meanwhile, more conservative funds, with 21–40% of capital in growth assets like stocks, have dipped 1% this year.
Ultimately, the market rout has left some worse off than others. Yet regardless of your position, it’s worth stepping back and not jumping to conclusions.
Make no mistake; it’s a horrible start to the year for super funds. And, should the stock market worsen, it could get much worse before the situation improves. Yet in context of the last five years, it’s not time for panic just yet.
Balanced funds saw average returns of 4.5% in 2015. A balanced option with one of the better performing funds could’ve netted a 7.5% return.
High growth funds outperformed the market, with returns of 5%. Even conservative funds returned 3.5% during last year. Considering the ASX finished 2015 down 2.4%, that’s not a bad outcome. It could’ve been a lot worse.
In fact, since 2011 we’ve had four straight years of positive returns on super. In the grand scheme of things, the industry has held up very well all things considered.
So if it’s not time to panic, what can you do?
Well, Chant West urge people to approach super with a long term view. As they say, market fluctuations will always affect short term investment performance. And since super is a long term play, long term returns are what really matters. On that front, superannuation has benefitted most Aussies, and it promises more in the future.
Ultimately, every case needs to be assessed on an individual basis. It may be appropriate for some people to change their funds. For others, it could be too hasty or simply unnecessary. Your age, your retirement plans, and the importance of super to your portfolio will all factor into any decision. Yet making no decision at all, according to Chant West, might be the best course of action.
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The ASX in 2016: no light at the end of the tunnel for super?
Of course, people have every right to worry their super balances could decline further still. Who’s to say the ASX doesn’t fall to 3,500 points? True, the January rout (so far) could be nothing more than a blip. But it could also be on course for a meltdown. We just don’t know for certain.
Either way, while it’s no time to panic yet, some caution is advised. Anyone giving serious thought to changing their super fund is better off consulting an advisor first. As for the rest of us, we’re better off seeing whether the market momentum snowballs into something bigger.
Unfortunately, that’s out of our hands. The only things in our control are where and who we park our super with. On that front, we’d all be wise to remain vigilant in managing our super.
The one thing you should never put up is super funds stealing your money. Many people are oblivious to the fact the super industry is rife with abuse. It’s not just stock market hiccups that gnaw away at your hard earned money. You’re far more likely to be a victim of hidden super fees eating away at your retirement fund.
Don’t settle for anything less than what you deserve. That’s the motto our Managing Director at Markets and Money’s, Bernd Struben, swears by. Bernd has more than 20 years of professional finance and management experience. He knows what he’s talking about when it comes to super. And it’s why he’s written a free report showing how you can protect your money from these hidden fees.
Bernd will show you how to take control of your own destiny, making your super work for you. To find out how to download of copy of ‘The Hidden Fees Gouging Your Retirement Money…and What You Can Do About It’, click here.
Junior Analyst, Markets and Money