Should you worry if your super balance is fluctuating? Or is it a sign that you’ve got the right long-term, growth-oriented approach to your super….
The answer depends on whether your super choices are aligned to your needs.
For many Australian super investors—and there are 16 million1 of us—COVID-19 may have caused your super balance to change overnight.
In this article we’ll address the reasons for this and what it means over the short and long-term.
The COVID-19 crash
Your 2020 super balance has bounced around because COVID-19 has forced lockdowns around the world.
As the world’s economy largely depends on people getting together – in shopping centres, offices, stadiums, bars and airports—countries grounded to a halt. As the crisis began to unfold in Wuhan, Lombardy, London, New York and Auckland - share prices tumbled too.
Impact depends on how your money’s invested
In 2020 super balances haven’t just fluctuated downwards. As Governments and central banks flung masses of cash at the problem (and a clearer picture of the virus’ weaknesses emerged), share prices soared back up. The US and German markets both had an increase of over 20% in the June quarter.
So, what do all these numbers tell us about the nature of your super balance?
It will fluctuate. And it will fluctuate in proportion to the percentage of growth assets in your super fund options. If you’re in a Growth2 fund where perhaps 85% of your money is in shares and property, short-term falls in the sharemarket will be reflected in your super balance.
The same is true—but to a lesser extent—if you’re in a balanced fund where you could have up to 70% of your money invested in shares and property.
If you’re in Conservative or Cash options, your balance won’t move so much with the market as most of your capital is invested in low-return, low-risk options like cash and short-term government securities.
Higher returns mean more movement
The crucial point is that this movement—the volatility—is the price you pay for higher returns.
In fact, over 10 years, the average person invested in a Growth super fund outperformed those invested in a Conservative super fund by more than 2% per year3.
That may not sound much, but super is a long-term investment and two percent extra a year, compounding over decades, can make a serious difference to the amount of money you retire on.
Determining your comfort level with volatility
Every person’s super plan is different.
If you’ve got a long time till retirement and you can look past short-term changes in your super balance, you may find that taking a more aggressive approach with your investment options is ok. This means your portfolio would have greater exposure to higher risk assets like shares and property than those with lower risk, cash and fixed income.
As you get closer to retirement, or if your super is all you have to rely on in retirement, a more stable super balance could be desirable so more conservative investment options may suit you.
Take control of your super
The best thing you can do is review your investment options and make sure they’re tuned to suit your age, attitude to risk, current financial circumstances and long-term plans. Speaking with a financial adviser might make that review even more effective.
1 ASFA: The benefits of Australia’s compulsory superannuation system – June 2020
2 We’re using categories from Moneysmart.gov.au. The exact numbers may differ slightly depending on the investment manager you’re with. The principles remain the same.
3 Chant West: Super funds navigate crisis to deliver surprise result – 17 July 2020
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at September 2020 and may be subject to change. This information may constitute general advice. The information in this article is factual in nature and does not take into account personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, NULIS does not accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.