Technology is making us more aware of our super, the risk is how we react, writes Jason Murphy.
Knowing your super balance is a good thing. Seeing the impact of short-term volatility on your super balance – and acting on it – is generally not so good.
Technology has given us greater real-time visibility of our super balance. We can see it anytime, anywhere, when we log in to our super account online.
But this convenience has a big effect on how we view our super, and it comes with risks.
For example, global volatility in February 2018 saw an estimated $5 trillion wiped off the world's share values. The catalyst was US government bonds surging to a four-year high and the prospect of rate hikes in the US.
The impact was heavily felt in Australia. After hitting a near decade high in January 2018, from February 4 to 7 the Australian share market suffered a $90 billion drop in value. By close of trading on February 7, almost every stock had posted losses.
However – and here's the important part – most of those losses were recovered within three weeks.
Refrain from making reactive decisions
Seeing the impact of this sort of volatility on the value of your super balance can put fear into even the most stalwart of investors.
ANZ has seen some customers responding swiftly, but often unwisely, when they see their super balance change as the market moves.
For example, moving into a more conservative investment option during a downturn crystallises your losses and means you may miss out on the benefits of any subsequent rebounds.
"There is a real risk in people making reactive decisions to short-term volatility, no matter whether it's up or down," says Mark Rider, chief investment officer, ANZ Wealth.
Rider cautions against reacting without first doing your research to determine whether it's just a temporary change – especially if you don't usually follow investment markets.
If you are concerned, he says, you should seek professional advice regarding your investments' suitability.
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 in the long run.
Markets fluctuate, so it's important to focus on the longer-term view.
Looking at the long term
Investors usually have the option of investing their super funds according to 'growth', 'balanced' or 'conservative' strategies.
Growth options 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 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 over the years from compounding growth during the life of their superannuation.)
Over time, a wide array of major asset classes has shown growth. For example, if you invested $10,000 in Australian shares in January 1983, you would have roughly $535,000 by the end of December 2017, according to an analysis by Thomson Reuters DataStream and ANZ Wealth.
Over those 30-plus years, however, the value of those shares would have been subject to high volatility.
Long-term returns for conservative, moderate and growth funds
Timeframe: Returns from January 1, 1992 to December 31, 2018.
Note: This performance chart is for illustrative purposes only – not actual performance.
All of the ANZ Smart Choice Super choose your own investment funds (conservative, moderate and growth) have an allocation to cash, Australian fixed interest, global fixed interest, listed real assets, Australian shares and international shares. This allocation is carefully managed by the Chief Investment Office and allocations can be increased or decreased over time.
Data: We have used our existing asset allocation and the following indexes to model performance:
Cash: Bloomberg Barclays Bank Bill Index
Australian Fixed Interest: Bloomberg AusBond Composite Bond Index 0+ Years
Global Fixed Interest: Barclays Global Aggregate Hedged to AUD
Listed Real Assets: Pre 31/12/2005 MSCI World ex Australia Net Total Return 30% Hedged to AUD. Post 31/12/2005 50% FTSE EPRA/NAREIT Developed Rental Index ex Australia NR Hedged to AUD, 50% FTSE Developed Core Infrastructure 50/50 NR Hedged to AUD
Australian Shares: S&P/ASX 300 Total Return Index
International Shares: MSCI World ex Australia Net Total Return 30% Hedged to AUD
Returns are based on annual historical returns for the indexes. Past performance is not indicative of future performance.
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 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.
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