This week's market volatility reinforces super as a long-term investment and the importance of diversification.
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By MANO MOHANKUMAR
Earlier this week we saw a lot in the media about falls in share markets around the world, and at Chant West we were asked by several journalists about the impact of this on superannuation.
While share markets are the main driver of the performance of 'growth' funds (61 to 80% growth assets and where most Australians have their super), they only have on average about 55% invested in listed shares and REITs. Members can take great comfort from the fact that they're invested in portfolios that are well-diversified across a wide range of growth and defensive asset classes, including unlisted assets such as unlisted infrastructure and property. This helps cushion the blow when there are sharp market falls like we saw this week.
Since Tuesday, markets have recouped some of the losses and we estimate that the median growth fund is only down about 0.6% this calendar year.
Those approaching retirement are naturally more likely to be concerned about such volatility. However, they're typically more conservatively invested. We estimate that conservative funds (21 to 40% growth assets) are only down 0.1% in 2018.
Additionally, members need to remember that super funds have had a great run in recent years. Growth funds have just come off a particularly strong year when they returned 10.8% on average and six straight positive years averaging over 10% a year.
We encourage members to think long-term and not get distracted by short-term volatility. Timing the market and moving into more conservative options after share market falls can be dangerous as in addition to crystallising your losses, you miss out on any subsequent rebound.
Mano Mohankumar is Chant West's Senior Investment Research Manager with 20 years' experience. Mano regularly provides media comment on superannuation and investment matters.
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