Seeing the impact of recent volatility on the value of your super balance can put fear into even the most stalwart of investors.
While some people may respond impulsively when they see their super balance change as the market moves, this isn’t always prudent. In fact, a calm and considered approach is more important than ever.
What's happening to my super balance?
Most superannuation funds in Australia are partly invested in shares, and the share market frequently rises and falls. Share values are subject to swings based on a number of factors, not all of which are purely economic.
This means it can be a wild ride for people whose superannuation investments include shares. But the overwhelming lesson of share investment is that, historically, shares have trended up over the long run.
Markets fluctuate, so it’s important to take a longer-term view.
Taking a long-term view on super
Investors usually have the option of investing their super funds according to ‘growth’, ‘balanced’ or ‘conservative’ strategies.
Growth options tend to focus more on shares and are typically riskier than the other options, so they may be better suited to younger investors who have more time to ride out any fluctuations in the market over the long term.
At the other end of the spectrum, conservative options usually focus more on cash and bonds, and may be better suited to older investors who are nearing retirement and so are looking for less volatility in their investments. (It’s worth noting, though, that a sudden shift from a growth to a conservative investment strategy may limit an investor’s benefit from compounding growth during the life of their superannuation.)
Over time, a wide array of major asset classes have shown growth. As per the graph below, if you invested $10,000 in Australian shares in January 1983, you would have almost $470,000 by 24 March 2020.
Over those 30-plus years, however, the value of those shares would have been subject to high volatility. Conversely a cash investment over the same time period would have given you close to $110,000.
Example of growth of $10,000 invested over time
Example of growth of investment over time (PDF 83kB)
Timeframe: 31 December 1982 to 24 March 2020. Annual returns are calculated on December year end.
Source: www.marketindex.com.au, FactSet, ABS and IOOF.
Note: Past performance is not indicative of future performance. Your investment is subject to investment risk, including possible repayment delays and loss of income and capital invested. Any case study is shown for illustrative purposes only and is not a prediction of the actual outcomes you will achieve. Listed real assets and international fixed interest are not included in the graph because data is not available from 1983.
Data: Australian shares: S&P/ASX 300 Total Return Index | International shares: MSCI World (ex Aust) Net Total Return Index in AUD | Australian fixed interest: Bloomberg AusBond Composite 0+ Years | Cash: Bloomberg Ausbond Bank Bill Index | Inflation: Consumer Price Index.
Investing according to your lifestage
Of course, few investors would put all their faith in just one asset class.
ANZ Smart Choice Super members are automatically invested in the lifestage investment option, based on their decade of birth. Lifestage options use a diversified mix of asset classes as an investment strategy, designed to strike an appropriate balance between growth and defensive asset classes based on age and adjusted over the longer term.
Daily volatility is typically the enemy of an investor who wants their money in a week, a month, or even a year. But variable returns are the price to be paid for those seeking higher long-term growth in a portfolio.
The trick with watching a superannuation balance is to remember that short-term surges and tumbles can be expected, and may not always be something to be overly worried about.
Being invested in a lifestage investment option means we do the work for you.
When you’re young, it could be years before you start even thinking about retirement. So you’ve got time on your side. Early on, your lifestage investment option is mainly invested in growth assets, such as shares.
These are designed to provide potential higher returns, with plenty of time to ride out any dips in markets. As you approach retirement, we automatically adjust the mix with a higher allocation to less volatile investments, such as cash and fixed interest bonds.
This is the time when you have the most to lose, so it makes sense to protect it.
How our lifestage options are invested
For ANZ Smart Choice Super, our Lifestage investment options include: 1940s, 1950s, 1960s, 1970s, 1980s, 1990s and 2000s.
For ANZ Smart Choice Pension, our Lifestage investment options include: 1940s, 1950s and 1960s.
1940s: Designed for people who have retired or are close to it. Your money is mainly invested in cash and fixed interest to provide you stability with your savings. However you’ll have some money in growth assets allowing you to receive the potential benefit of higher returns during your retirement.
1950s: Designed for people who have retired or are close to it. Your money is invested across defensive and growth assets. Defensive assets such as cash and fixed interest provide you greater stability, and growth assets such as shares and property allow you to receive the potential higher returns into retirement.
1960s: Designed for people who are getting closer to retirement but still have some way to go. Your money is mainly invested in growth assets such as shares and property, but compared to a younger generation you have a greater share of defensive assets such as cash and fixed interest to provide more stability.
1970s/1980s/1990s/2000s: Designed for people who have a long way to go until retirement. Your money is invested mainly in growth assets such as shares and property. This provides you the benefit of potential higher returns, along with the time to ride out the ups and downs of markets.
For more detailed information on how your super ANZ Smart Choice Super is invested, please read our ANZ Smart Choice Super and Pension Additional Disclosure documents (PDF 599kB).