Author: Greg Alder - .au
It is appropriate that there is no decision yet on who will form a government. After all, neither Labor nor Coalition seemed to have decided on very many policies - or if they, had, they seemed reluctant to reveal them. There was certainly very activity on the subject of superannuation during the weeks preceding the election. The Labor party seems reluctant to adopt a number of recommendations of the Cooper Review. And they want to dilute the recommendations of the Henry Review.
Meanwhile, the Coalition appears to have no superannuation policy at all.
Both of these facts suggest that none of the major parties takes superannuation all that seriously. Perhaps superannuation needs to arrive on an Indonesian fishing boat to be elevated in importance.
So, with no help from Canberra, funds did manage to move forward in July.
| The month of July 2010 | 2.00% |
| 3 Months ending 31 July 2010 | -1.71% |
| Financial year to 31 July 2010 | 2.00% |
| 12 months ended 31 July 2010 | 8.09% |
| Rolling 3 year return to 31 July 2010 | -2.67% |
| Rolling 5 year return to 31 July 2010 | 3.45% |
| Rolling 7 year return to 31 July 2010 | 6.47% |
| Rolling 10 year return to 31 July 2010 | 4.72% |
- Median Option refers to "balanced" option with exposure ti growth style assets of between 60% and 76%. Approximately 80% of Australians in our major super funds are invested in their fund's default option which in most cases is the balanced investment option. Returns are net of all fees and tax.
It is possibly an exaggeration to say the Coalition has no super policy. They have indicated that they will not endorse the proposed increase in compulsory super contributions from 9% to 12%. Nor will they abolish commissions. Both of these decisions are detrimental to retirement savings. So, it might be better to say that the Coalition has no positive super policies. But if they concentrate solely on rejecting government proposals, isn’t that what oppositions are supposed to do?
So, they have really asked us to vote them into government on the strength of their anti-policies. Awfully confusing.
What many of us (and especially the Baby Boomers closing in on retirement) are clamoring for is long term predictability and commitment from Canberra. With the Labour party keen to make yet more changes and the Coalition keeping mum about what changes it might make, the only certainty is that our uncertainty is likely to continue for the foreseeable future.
Back to returns.
We are closing in on the dubious 3rd anniversary of the start of the GFC. Come November, 3-year performance figures will be at their worst as they will be calculated from the peak of the pre-GFC boom.
To quote Jeff Bresnahan, Managing Director of SuperRatings, “There is no walking away from the fact that short term super fund returns aren’t looking great. So, unless we have a major economic boom over the next two years, the 3 and 5 year returns will most likely struggle to match inflation.”
“However, longer term results such as 7 and 10 year returns should comfortably exceed inflation over the same period.”
Despite an average 5 year return of just 3.45% per year, a number of funds have managed to dominate performance tables, in some cases happliy sitting above 5% a year over 5 years and even nudging 8% over 7 years.
| Option Name | 5 Yr (5 pa) | Rank/48 | 7 Yr (% pa) | Rank/38 | 10 Yr (% pa) | Rank/32 |
|---|---|---|---|---|---|---|
| OSF Super - Mix 70 | 5.84% | 1 | 7.59% | 2 | - | - |
| Buss(Q) - Balanced Growth | 5.26% | 2 | 7.97% | 1 | 6.45% | 2 |
| Catholic Super - Balanced | 5.10% | 3 | 7.43% | 3 | 5.68% | 5 |
| NGS Super - Diversified | 4.89% | 4 | 7.17% | 10 | 5.66% | 7 |
| Club Plus Super - Balanced Option | 4.82% | 5 | 7.26% | 5 | 5.56% | 11 |
| Telstra Super Corp Plus - Balanced | 4.65% | 6 | 7.37 | 4 | 5.64$ | 9 |
| CareSuper - Balanced* | 4.63% | 7 | - | - | 6.69% | 1 |
| AustralianSuper - Balanced Option | 4.51% | 8 | 7.25% | 6 | 6.05% | 4 |
| Cbus - Core Strategy | 4.49% | 9 | 7.14% | 11 | 5.56% | 11 |
| LGSuper Accum - Balanced* | 4.41% | 10 | 6.47% | 19 | 4.72% | 17 |
| SR50 Balanced (60-76) Index | 3.45% | - | 6.47% | - | 7.72% | - |
Based on the SR50 Balanced Index Constituents. A Balanced Option has between 60% and 76% of assets in growth style investments. All returns are net of fees and tax. *indicates Interim Rate Return.
The volatility of the past few years is best illustrated by the graph below. The blue bars show the monthly returns. The big dips at the bottom of the GFC look like mine shafts.
The red rollercoaster is the rolling 1 year return. From the heady heights of April 2006, it looks like a long stomach-churning way down to December 2008 - which might be accurately described as the pits.
The green line shows the moderating affect of a rolling 5 year return.
Given this volatility, it is awfully tempting to sit on cash. Tempting, but not necessarily smart.
The problem is that we generally switch to cash at the bottom of economic cycles and into more aggressive investments as cycles near their peaks. That is a great way to miss out on any opportunity to grow your super.
Many of us imagine that our funds change investment strategies to suit the economic climate. They don’t. Many funds stick to their asset allocation irrespective of the economy.
If Australians want to minimise the negative impact of a falling market and maximise the positive impact of a boom, they need to get off their derrieres and take an active interest in their super.
And it is best not to make decisions on their Pat Malone, but to seek impartial, expert advice - the kind that we dispense here at Savvy.
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