Is the sky falling? Big drop in super fund returns in January

As Australia struggles to recover from the pandemic, investors have received sobering news. The median balanced super option declined by more than two per cent in January.

Superannuation analyst SuperRatings reports that the median balanced option returned a fall of 2.1 per cent in the opening month. The fall comes after a turbulent month for domestic and global equities, and increasing concerns about rising inflation, along with looming rate hikes.

What is driving the downturn?

In simple terms, the market has been ‘spooked’ by several factors simultaneously, including an inflation rise, an increasingly likely hike in official interest rates and a supply shortage resulting from the far-reaching impacts of the pandemic.

Read: As you count your nest egg gains, analysts warn of bumps

SuperRatings executive director Kirby Rappell said this week that previously falling interest rates had supported rising asset prices which had translated to a strong superannuation performance in recent years.

“However, we are seeing an uptick here, which has flow-on effects for investment markets and the super balances of Australians,” he said.

Should you be concerned by this dramatic fall?

Mr Rappell explains that for the vast majority of superannuation investors, who choose the balanced or other more conservative options, there is no great cause for concern.

“Only about 50 per cent of investments are in shares so your super should be less volatile if you are in a balanced option or a more conservative option. This means that members sitting in these options are not as affected by the ups and downs in stock markets we have seen recently.”

Read: The common investment putting retirements at risk

Investors should also be mindful that one month is a very small part of the superannuation lifecycle. By its very definition superannuation (from the Latin super meaning ‘over’ and annus meaning ‘year’) is a payment made towards a future pension. It is a long-term investment.

It is also worth noting that in the 12 months prior to January, balanced super funds performed very strongly. The median balanced option returned a whopping 13.4 per cent in 2021.

In short, the proverbial ‘big picture’ perspective is important at times such as this.

Read: How your superannuation affects the Age Pension

That does not mean investors should blindly ignore the peaks and troughs of superannuation. Mr Rappell’s advice rings very true in light of January’s somewhat startling figures:

“As you settle into 2022, now is a good time to do a health check on your fund and be sure to look at returns as well as fees and insurance,” he says. “While all super funds have good years and those that are more challenging, strong long-term performance remains the main game for members.”

Don’t panic!

Super Consumers Australia director Xavier O’Halloran urges all superannuation members to take the long-term approach, reminding us that superannuation is “designed to be balanced so that it can ride out these kinds of shocks”.

“Right now is not the time to panic”, he says. “There’s some short-term volatility in the market, but superannuation is really a long-term investment. And so, people should be thinking about what their strategy is decades into the future.”

Are you concerned by the January super fund drop? Have you given your fund a ‘health check’ recently? Why not share your experience in the comments section below?

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Andrew Gigacz
Andrew Gigacz
Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.
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