Grow Magazine

Why your super balance keeps changing

December 2016

Technology is making us more aware of our super, the risk is how we react, writes Jason Murphy.

How would you react if your superannuation balance suddenly changed?

These days, people are more readily reminded of their superannuation balance. It either stares them in the face when they log onto their internet banking or it’s just a few clicks away.

This convenience has a big effect on how people see their super and comes with risks.

Michael Ball, the product manager of ANZ Smart Choice Super, sees some customers responding swiftly but often unwisely to market movements when they see their super balance change as the market moves.

Ball provides the example of a market downturn that happened during September 2015.

“Our call-centre lines lit up. Customers saw their balances going down and they were wanting to switch out of their investment option.”

Restrain from reactive decisions

He cautions against reacting in a permanent way without doing your research to determine if it is just a transient change in the value of super, especially if it’s the first time you’ve noticed such a change. If you are concerned, then it may be appropriate to seek professional advice regarding your investments' suitability.

Superannuation funds in Australia are partly invested in shares, and the sharemarket frequently rises and falls. Share values are subject to swings based on a number of factors, including matters that are not purely economic in nature.

All this means it can be a wild ride for people whose superannuation investments include shares. But the overwhelming lesson of share investment is that, historically, shares have trended up in the long run.

“There is a real risk in people making reactive decisions to short-term volatility, no matter whether it is up or down,” Ball says.

Markets fluctuate, so it’s important to focus on the longer-term view. 

Looking at the long-term

Investors usually have the option to invest in “growth”, “balanced” or “conservative” superannuation funds. Growth funds focus more on shares and are typically riskier so they may be better suited to younger investors who have time to ride out any fluctuations in the market over the long term.

Conservative options focus more on cash and bonds and may be better suited to older investors who are looking for less volatility in their investments. Sudden shifting from a growth fund to a conservative fund may limit investors’ benefit over the years from compounding growth during the life of their superannuation.

Over time, a wide array of major asset classes have shown growth. For example, if you went back to 1983 and invested $10,000 in Australian shares, you would have turned it into roughly $400,000 by 2014, according to analysis by Thomson Reuters DataStream and ANZ Wealth.

But over those 30-plus years, the value of those shares would have been subject to high volatility. 

Investing in Australian fixed income would have been a far steadier growth path, but the result in 2014 would have been assets worth half as much as the riskier investment choice.

Of course, few investors would put all their faith in just one asset class. Investing in diversified asset classes helps minimise risk and is the recommended course for most investors.

The following chart shows the performance of a range of investment strategies. “High growth” is biased towards Australian and global shares, while the “defensive” portfolio contains far more fixed income (government bonds) and cash.

Please note these are sample profiles only of a typical diversified fund. The fund performance has been based on the returns of the individual indexes, as outlined below. Timeframe: 01/01/1983 – 31/12/2015. Data: Australian shares - S&P/ASX 300 Accum. Index, Global Developed Shares - MSCI World (ex Aus) in $A, Property S&P/ASX 300 Prop Trust (Pre May 05) / FTSE EPRA/NAREIT Developed (Post May 05) Fixed Income: Commonwealth Bank Bond Index (Pre Sept 89) / UBSA Composite Bond All Maturities Index (Post Sept 89), International Fixed Income: Barclays Capital Global Aggregate Index Hedged $A. Cash: 11 am Cash Rate (Pre Apr 87) / UBS Bank Bill Index (Post Apr 87). Source: RBA, DataStream, ANZ Wealth. Past performance is not indicative of future performance and the value of investments may rise or fall.

Defensive portfolios over the time period sampled (1983-2014)  show very few periods where they have significant negative returns.

Daily volatility is the enemy of an investor who wants their money in a week, a month, even a year. But variable returns are the price to be paid for those seeking higher long-term growth in a portfolio.

The trick with watching a superannuation balance is to remember that short-term surges and tumbles can be expected and may not always be something to be overly worried about. 

December 2016