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.
Frequently Asked Questions about this Article…
What is a balanced super fund and how is it usually split between growth and income assets?
A balanced superannuation fund typically mixes growth assets (like shares) with income‑producing investments. According to the article, a balanced option can include up to about 70% growth assets, with the remainder in income assets, which aims to balance return potential with risk.
How have balanced funds performed recently and how does that compare to past years?
SuperRatings data in the article shows the median balanced fund fell 1.4% in July, and wild markets in August were expected to pull financial‑year returns down by around 4.5–5%. By comparison, the previous full financial year returned about 8.7% and the year before 9.8%. During the GFC, balanced funds had losses of about −12.9% (2008–09) and −6.4% (2007–08), and the median balanced fund still sits about 20% above its GFC low.
Should I switch my super to a more defensive asset mix because markets are volatile?
The article cautions against switching to a more defensive split simply because markets are low: doing so crystallises losses and risks missing the market recovery. Instead, it recommends reviewing your super to ensure the mix suits your situation rather than trying to time or outsmart the market.
How should my age and time horizon influence how I split my super investments?
Your age and time horizon matter: the further you are from retirement, the more time you have to recover from market falls, so you can generally tolerate more growth assets. If you’re close to retirement, you may prefer a more conservative mix to protect capital. Also factor in your temperament—how you'd cope psychologically with losses.
Is now a good time to make extra super contributions and how can I do it?
The article suggests that when share prices are cheap it can be a good time to add to your super, either pre‑tax via salary sacrifice or after‑tax. For after‑tax contributions, the government may make a matching co‑contribution of up to $1,000 if you earn less than $61,920 (as noted in the article).
What trade‑off do growth assets in super involve?
Growth assets offer the potential for higher long‑term returns in exchange for greater volatility and the chance of short‑term losses. The article highlights that while growth assets can produce better returns over time, they currently are causing “headaches” because of market volatility.
Which balanced super funds were among the best performers over the past five years?
The article names several top-performing balanced funds over the recent five‑year period: Officers' Superannuation Fund (about 4.9% p.a.), REST (4.2% p.a.), Catholic Super (4.1% p.a.), Non Government Schools Super (3.9% p.a.) and First State Super – Health Super Division (3.9% p.a.).
How can I decide on the right super split for my retirement goals?
Decide by weighing your time horizon, risk tolerance (temperament), and retirement goals—such as retiring early or travelling, which may require more growth to build the fund. Review your super to make sure the asset mix matches those objectives, avoid knee‑jerk moves during market swings, and consider topping up contributions if appropriate.
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