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Super is a balancing act

Different stages of life require you to alter how your retirement fund is split.

Different stages of life require you to alter how your retirement fund is split.

DID you give much thought to your super in April when sharemarkets began turning south? What about since the beginning of this month when they positively plunged?

Your answers will very likely depend on your age. Quite logically, the further you are from retirement, the further from your mind the state of your super balance will be.

If you hope to hang up your boots soon, however, you've probably been losing sleep.

Figures don't yet demonstrate how much damage has been done to our funds during the recent ructions but the latest available, from SuperRatings, say the median balanced fund fell 1.4 per cent in July.

The researcher estimates the wild markets in August will bring the number for the financial year so far down by between 4.5 per cent and 5 per cent.

This follows a positive full financial-year result of 8.7 per cent. There was also a gain in the previous financial year - of 9.8 per cent.

Previously, there were losses of minus 12.9 per cent in 2008-09 and minus 6.4 per cent in 2007-08 as the global financial crisis hit. Remember how harsh this was after becoming accustomed to double-digit returns (growth was 15.7 per cent in 2006-07)?

The best-performing balanced funds during the past erratic five years have been Officers' Superannuation Fund (4.9 per cent annual growth), REST (4.2 per cent), Catholic Super (4.1 per cent), Non Government Schools Super (3.9 per cent) and First State Super-Health Super Division (3.9 per cent).

The good news is that even the median balanced fund remains about 20 per cent above its GFC low.

The thing is, a balanced fund - the type of fund you'll have if you didn't actually choose one - is made of up to 70 per cent growth assets, such as shares, and the rest in income-producing investments.

The appropriateness of such a figure, particularly in light of the extreme volatility of markets, is under debate. The Organisation for Economic Co-operation and Development recently found that of 27 countries it examined, Australian super funds held the third-highest proportion of equities.

The problem is that growth assets carry risk in other words, the chance of loss. But on the flip side, theoretically, they return more to investors in exchange for taking on this risk.

Of course, they're not right now. They're just giving us right royal headaches.

What's important in any investment climate is that you split your money in your super in a way that's right for you. Keep in mind your time horizon - the longer you have before you retire, the longer you have to recover any losses and your temperament - that is, how you would cope psychologically with losses.

You also need to weigh up these factors with the ability to achieve your goals. You might want, for example, to retire early or to travel extensively when you do. To achieve these aims, your fund will need more money than your employer pays on your behalf.You'll also need growth in your fund.

Don't forget, either, that when markets are low, if you switch to a more defensive split of assets, you will crystallise your losses. What's more, you risk missing the recovery.

A better option is to review your super simply to ensure it's right for you, without trying to be clever and outsmart the market.

With share prices cheap in historical terms, now is also the time to start paying in money yourself, either before tax by salary sacrifice or after tax. If you earn less than $61,920 and do the latter, the government will make a matching contribution of up to $1000.

Buying low is a great way to get closer to your retirement goal. Assuming, that is, you have enough time to make back the money if prices first fall further.

Follow this writer on Twitter @nicolepedmck.

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