27 September 2023

Market chaos: Three steps to safeguard your super right now

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Nicole Pedersen-McKinnon* outlines some superannuation safety moves people can take now.

Mayhem is too strong a word, but chaotic is still the order of the day in the sharemarket.

Down 1.5 per cent one day; up 1.5 per cent the next day; down 3 per cent the third.

It’s wealth-whiplash territory.


The short version is that inflation is up because supply, across all sorts of items for all sorts of reasons, is down.

And one of those reasons is an across-border war which is making the situation far worse.

Share markets hate uncertainty.

And we are all invested via our superannuation.

So what’s the story with your super? Has it been hit and what can you do about it?

Super returns in August

The news was not ‘super’ last month, with the median balanced fund losing 0.5 per cent, according to SuperRatings.

The median growth fund, meanwhile, fell by an estimated 0.4 per cent.

A balanced fund is one that invests approximately 70 per cent of your money in growth assets like shares and listed property.

A growth fund is, you guessed it, one more heavily invested in those more volatile share and property assets.

But markets across the world are reacting to the continuing interest rate hike-cycle, designed to slow inflation.

In Australia, another 50 basis points increase this month has taken the official cash rate to 2.35 per cent.

What’s important is to keep it all in perspective.

Over 10 years, that balanced fund has returned 8 per cent and over five, 6.3 per cent a year.

The median growth fund has returned 9.5 per cent and 7.3 per cent, respectively

But how are people reacting to short-term pain?

The super safety moves

One-in-five Aussies have made changes to their risk profile this calendar year, according to Finder.

The pandemic and recent share market volatility have made members assess the risk/return profile of their fund, said Alison Banney, superannuation expert at Finder.

“There’s a strong correlation between global uncertainty and the amount of risk people are prepared to take with their investments,” she said.

What’s heartening though – because another way of looking at price falls is that shares are on sale – is only one-in-10 members have switched to a more conservative risk profile in the past six months.

In fact, 8 per cent have switched to a more aggressive one.

Of course, that means the vast bulk of Australians (81 per cent) have not switched their super risk profile at all.

And if you have it right in the first place, that’s the smart thing to do.

Three steps to safeguard super

The better way to safeguard your super in uncertain times is to make absolutely certain you have the right fund.

Here are the three steps to do it.

Step 1: Ensure your fund has the right investment mix for you

Your what-can-also-be known as sleep-at-night profile, should have very little to do with the markets and be mostly to do with you.

The investment mix that leaves YOU able to sleep at night.

In general, the farther you are from retirement, the more risk you can take and therefore the more growth assets you can afford to hold.

The closer you are to retirement, the more conservative your mix should be.

Bear in mind though that you could be retired for a long time and you may need asset growth to keep up with your income requirements.

Is yours appropriate?

Beyond your investment mix, the key to market-beating returns comes from what may be low fees and solid performance… in any market conditions.

Step 2: Check your insurance premiums

Your fee benchmark, according to SuperRatings, is an average 1.1 per cent of the funds under management each and every year.

It is $564 for a balanced fund holding $50,000, For some investment and administration fees, including your member fee.

You will likely have insurance premiums deducted on top of this.

Just make sure they are value for money.

Remember, the less that is deducted from your super, the more that is left in there to grow.

Step 3: Check your super manager

Check your super manager makes the performance grade by reference to the returns of the median manager.

While you need to look back over five and even 10 years to find one that is consistently good, the hugely varied market conditions from year-to-year lately are informing.

In the 2020-21 financial year, when markets soared post pandemic panic, that balanced fund manager put 17.5 per cent on their fund.

Yes, 17.5 per cent.

In the 2021-22 financial year, where markets were volatile towards the end, the median loss was only about 3 per cent.

Remember, your hurdle for the longer term: 6.3 per cent over five years and 8 per cent over 10 years, too.

What, then, of market swings?

If you have the right super fund and the right fund, stop being spooked by the sharemarket.

Trust, instead, that they are both protecting your money and bagging bargains.

*Nicole Pedersen-McKinnon is a financial educator and commentator, and the author of How to get mortgage-free like me.

This article first appeared at au.finance.yahoo.com.

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