The events that robbed you of a better result for 2009/10
Don’t get us wrong. The year’s returns don’t look bad, with average Balanced options returns nudging 10%. That’s an impressive 7% above inflation. However, as recently as April most indices suggested members could expect returns 50% better than this for the 2009/2010 financial year.
So what happened between April and now? Why have most super funds lost 5% of their value in two months? Who or what is responsible for the loss of this extra income?
Trouble in Europe. Trouble in Canberra
There’s been ample commentary on the impact of Greece’s debts on the world financial markets. Now there are rumours that Spain’s rating might be downgraded. Both these events have impacted the European share markets and banking systems. Banks around the world are so intimately intertwined that if banks hurt in one market, banks will feel it in another market, far, far away - like Australia.
Closer to home, uncertainty over the government’s mining super tax has had a negative affect on mining projects and subsequently on resources share values. There are more people in so-called Balanced investment options that other types of super investments. Many super funds have a large proportion of their Balanced option’s funds invested in Australian shares. And, guess what, resources companies figure strongly in those share holdings. So if a mining company’s shares go down, the value of the super fund’s portfolio goes down and a members super balance goes down.
Ultimately, the government must take responsibility for this. They presented the mining super tax as a fait accompli, many months after they received the Henry Review that recommended it. They didn’t invite discussion with the mining sector before announcing the tax and then seemed to be genuinely affronted when the mining industry revolted. Thank you, K. Rudd, J. Gillard et al.
What’s a super member to do?
Every time super falls, we get emails and calls from members asking what they should do. When a particular option isn’t performing so well, there’s an almost irresistible temptation to look around at what other options ARE doing OK and to move into them. That is one solution. But not necessarily the right one. The problem with jumping when a market is down is that you might miss the ride up. The other problem is that by the time it’s news, it’s already history. That is, by the time figures reveal that Australian shares are growing strongly, you have already missed the boat. If you get on board, you might still enjoy some modest gains, but you could also face losses.
Think in decades, not in months
How long before you reckon you'll retire? Five years? Ten years? Twenty? Thirty? Whatever it is, you have one goal - to accrue as much as possible during your working life and to do it using investments with which you feel comfortable.
Yes, its useful to understand how super funds performed last month and last year, but in the grand scheme of things, what's more valuable is how a fund has performed over the long haul. Over 5 years or more.
The longer we measure fund performance, the better we are able to see the investment options that have delivered the best returns. Using the SuperRatings Indices (selections of 25 or 50 funds products in each option type), a super member can see where his or her money would have been best invested.
The right option makes all the difference
Still, getting into the right fund and the right option remains critical (see our story EARN 37% OR 0.2%. IT’S YOUR CHOICE). In the year just ended, the best property option earned close to 50% return. The worst lost nearly 10%.
If you’re unconvinced about your current fund, it’s easy to check it against similar funds using Savvy’s Top 10s tables and RateMySuper. Also read what we have to say about a fund in the Fundamentals reports.
If you’re comfortable in your current fund, but unsure about the investment option you’re in, check out the performance of other options in the Top 10s tables. You can also seek the advice of your super fund. Whilst they had previously been prevented from offering advice to members, they are now able to advise you on which of their investment option might best suit your current needs.
Funds offer just about any option you can think of. Each has its pluses. And its minuses. None of them behaves like any other option type. To give you an idea of how big is the difference between popular investment options, have a look at this chart.
It shows that if you'd invested $100,000 in the average International Shares option in 2000, you'd have lost a quarter of that money in the past 10 years.
If you’d put the same money into a typical Australian Shares option, you’d now be sitting on nearly $230,000.
That’s step one. Step two would be to carefully choose the best fund in your selected option. The SR Indices are an average of 25 or 50 funds. What those averages don’t reveal is the gap between the best and worst funds in a given option.
Choose carefully, then stick with it
We end with three words for those of you who want to supersize your super. Do your homework. All the hard work has been done for you. All you need to do is use the Savvy research, reports, reviews and ratings to find the best option and then the best fund, roll your super over (which you can now do on the Savvy website - Let Savvy Roll Over your super) and then leave it alone.
Finally, if you’re still unsure about what you should or shouldn’t do, take advantage of Savvy’s impartial, independent financial advice. Contact Casey at for more information.
Disclaimer: SuperRatings Pty Limited holds Australian Financial Services Licence No. 311880. This release has been prepared for the purpose of providing general advice only and has not considered the recipients objectives, financial situation or needs. The recipient should consider obtaining independent advice before making any decision about a financial product referred to in this report and should obtain and consider a copy of the relevant Product Disclosure Statement from the product issuer.