Superannuation returns in perspective

Jitters about the effects of market movements on superannuation are only natural, but should you really be worried? Recent headlines like “Super fund returns worst for 20 years”¹ highlight the effects market movements have on short-term super performance.

To put this in perspective, BT’s Head of Investment Solutions, Stewart Brentnall, explains the ‘ups and downs’ of super investing.

Some historical perspective

As Stewart points out and as the chart below shows, over the last twenty years or so, there have been at least ten major events that have had a significant impact on the Australian share market, starting with the Wall Street Crash in 1987.

“Each of these events resulted in a sustained period of market volatility. But while these events may have caused great uncertainty at the time, history shows us the Australian share market inevitably bounced back.”

The key, according to Stewart, is to keep things in perspective and focus on long-term investment objectives, rather than on what’s happening in the market. “Too often,” he says, “investors get caught up in the hype of short-term market movements and make rash investment decisions.”

History says the only way is up?

Key market events and accumulated returns of global shares, based on $1,000 invested in December 1984

The long and short of super investing

For a better idea of how time can help your super investment, take a look at the charts below.

“Chart 2 below,” says Stewart, “shows the one year returns to 31 December for the Australian share market over a 39 year period from 1969 to 2007. As you can see, the Australian share market experienced negative annual returns 11 times over the last 39 years.”

Volatility hurts in the short term²

Annual returns of Australian shares (%) - All Ords / ASX S&P Accumulation Index (since 1969 until end 2007)

Now look below at chart 3, which shows the rolling ten year average returns for the Australian share market over the same 39 years. “You’ll notice that over each ten year period, the Australian share market didn’t post a single negative return. Even for the ten years to 1987, which included the famous ‘87 sharemarket crash, the local share market still managed to post an average return of 24.4% per year.”

Volatility hurts much less in the long-term²

Rolling 10 year returns of Australian shares (% annualised) All Ords / S&P Accumulation Index (since 1969 until end 2007)

Diversify your super

For super investors, Stewart also emphasises the importance of diversification - or spreading your super over a range of asset classes, such as shares, property, fixed interest, cash. “It usually pays to diversify, which should guarantee you have some of your investments in the best performing asset classes at all times.”

What next?

As for what to expect next, Stewart expects more of a bumpy ride in the short-term, so a cool head and long-term view are vital. “Remember,” says Stewart, “time is the friend of good investment decisions, and the enemy of bad ones.”

1_Australian Financial Review, 18 June 2008.

2_Source: Standard & Poor’s.