Negative super no reason to panic
SUPER funds' poor start to the financial year has put them on track for their first negative result in a decade but savers are being urged to avoid knee-jerk reactions.
Almost one-third of the 2018-19 financial year is over and most superannuation fund returns have been in negative territory amid share market weakness in Australia and overseas.
Not even their conservative investment options have dodged the falls.
However, super specialists warn that panicking and switching to so-called safer investments could lose people money in the short term, and will almost certainly cost them in the long term.
Rainmaker Information director of research Alex Dunnin said the latest volatility on financial markets was normal and super was a 70-year investment for many people.
"Every time there's a big whack, there's always a big rally," he said.
It's been super's worst start to a financial year since 2015-16, although back then still finished the year higher.
Since the Global Financial Crisis 10 years ago, super has delivered a positive annual return every year.
A majority of Australians hold their retirement savings in their funds' default or MySuper options - typically a mixture of shares, bonds, property, infrastructure and other assets.
Mr Dunnin said during the GFC, some super funds reported up to one-third of their members switching to safer but low-return cash investment options.
"A lot of people who went to cash never got back in, and missed all the upside," he said.
Financial Strategist Theo Marinis said October was "always spooky" for investors as a traditional time of financial market weakness.
"It's almost psychological - there's no reason why it's different from any other month," he said.
"Keep your emotions in check. If it's your super, it's long term - people who own property don't think 'if my property has fallen 5 per cent I'm selling'."
Mr Marinis said rising global interest rates would weaken investment returns from conservative super fund options, which often relied on bonds, while cash option returns were already at record lows and almost zero.
SuperRatings chairman Jeff Bresnahan said super fund returns were doing well over the long term, and his firm's data showed that investment returns from balanced funds had doubled in a decade.
"For most members, it is important to keep a long-term view as volatility is unavoidable," he said.
"Timing markets is a fraught exercise and one to be extremely cautious of."
Even Australia's biggest and best-performing super funds have gone negative since July 1. Year-to-date returns from both balanced and conservative investment options at AustralianSuper and Cbus were negative earlier this week but have since climbed slightly above zero.
Similar investment options at Hostplus are still slightly below zero.
WHAT TO DO WHEN SUPER SLIDES
• Don't get emotional. Rises and falls are natural for financial markets.
• Compare your super fund's returns over the past three, five and 10 years rather than one year or less.
• Remember that balanced funds usually deliver negative returns every five to seven years, and Australia has gone nine years so far without one.
• Market falls are a buying opportunity for funds and their members because more money is made from buying assets at lower prices.
• If nearing retirement or already retirement, consider putting some money into lower-risk investment options and seek advice.