The Australian dollar falls to a five-year low, but superannuation returns remain steady.
The Australian dollar may have fallen to a five-year low, reaching 80.5 US cents yesterday, but despite the drop, superannuation fund returns remain steady.
Most analysts expect that the dollar will slip even further. Some experts, including Comsec’s Craig James, agree that the Australian dollar may fall a further 10 cents against the greenback.
"Clearly the investors around the world believe the best place to put your money at the moment is in the stronger greenback," says Mr James. “This is all because the US economy is stronger.”
Superannuation fund returns for 2014 were a little less than half the returns of the year before, but remained steady, mainly due to the lower Australian dollar.
According to the research firm SuperRatings, the average ‘balanced’ investment option earned 7.5 per cent in the last year, down from the unusually strong gain of 16.3 per cent in 2013, but better than local share market returns of 1.4 per cent in 2014.
This is a solid outcome for balanced investments driven by international shares – further illustrating the value of portfolio diversification, including diversification overseas.
While last year's returns were down on the 2013 outcome, they were roughly in line with average annual returns. In fact, balanced funds have rebounded more than 70 per cent from their lows during the global financial crisis, after suffering a 20 per cent slump in 2008.
"This positive return is the third consecutive calendar year that this has been achieved and is the eighth time in the last decade where positive numbers have been recorded," the SuperRatings report added.
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Alarm bells could be ringing at the notion of the Aussie dollar plummeting, but it may not turn out to be all that bad for our economy.
The news that superannuation returns have benefited from the lower dollar is indeed promising, but there may be other silver linings surrounding the cloud of our dollar dropping in value.
Australia's mining exporters may suffer, because they will get less return for what they take out of the ground. On the flipside, foreign companies will be willing to buy more Australian products because they will be cheaper. Local mining exploration may be strengthened as well, because it will be more expensive to explore overseas.
The local tourist industry will benefit because Australians may now begin holidaying closer to home, rather than heading overseas where it's more expensive. And we should see an influx of foreign tourists because it will be less expensive for them to visit Australia.
Retailers could benefit because it will be more affordable for Australians to shop in local stores or with domestic online retailers. Our education system may be better off because it will be less expensive for foreign students to come to Australia. The local film and television industry may also receive a boost because it will become more attractive to foreign producers.
Local manufacturers should feel less pressure from foreign competition. Exporters of Australian goods should be better off too, because their product will be more affordable and therefore more attractive to foreign buyers.
The government will welcome a lower dollar because export volumes will improve and imports will decline, which will convert to higher national income and GDP growth. The lower dollar may also be an ally to Treasurer Joe Hockey's budget bottom line because it will help to stimulate the local economy and boost economic growth at home.
So, the drop in the value of our dollar may seem daunting to some, but it’s a financial state from which we could take advantage. The local economy could benefit, as long as we make a concerted effort to ‘buy Australian’ – especially those who have been rewarded with returns from overseas investments. Putting that money back into our own economy could help to stimulate growth and get our country back in good financial stead.
How does this affect you? Does the falling Aussie dollar worry you? Or do you see it as a chance to re-invest in our economy on a local level? Is it time you spoke with your financial adviser in order to diversify your portfolio and take advantage of the changing economy?