Managing your super's bad New Year

Since the start of the year, as a sinking share market sparked fears of an imminent crash, Australians have nervously watched their super balances plummet.

Default super accounts fell between $40 billion up to $900 billion. ABC Business Reporter, Nassim Khadem, spoke to super industry players including Director of Research at Rainmaker Information, Alex Dunnin, who describes it as stock market “jitters” brought on by inflation around the world and fear of interest rates hikes.

Mr Dunnin told Ms Khadem that in 2021, the Australian Stock Exchange was up about 17%, which dragged super balances up by about 15%.

"The pandemic has been awful, but for super fund members, homeowners and investors, it's been stunningly brilliant," he says.

The concern now is, with the market sinking and interest rates expected to rise, will double-digit returns for Australians with super accounts still be possible?

Founder and Chief Investment Officer of Montgomery Investment Management, Roger Montgomery, says not in 2022.

"We will definitely have years in the future where investors enjoy double-digit returns again from their stock market investments. But it may not be 2022."

He says Australians can still take steps to protect their retirement nest eggs in the short-term.

He notes in the low-interest-rate environment, investors migrated out of cash into higher-risk sectors such as property, stocks and even, in some cases, private equity, venture capital and cryptocurrencies, and NFTs.

As interest rates rise, he says investors are going to find cash is, once again, 'king'.

"And we're going to find bonds, if they're held to maturity, will provide a better return than they have in the past," he said.

Mr Montgomery also says the stock market sell-off in January means that investors can buy good companies at lower prices.

He warns against holding big investments in technology companies and biotechnology companies that are not making any revenue or profit today but are expected to in 10- or 15-years’ time.

"They're the stocks that have fallen the most already," he says.

Despite January's losses, the super industry is urging Australians not to panic.

Deputy CEO of the Association of Superannuation Funds of Australia (ASFA), Glen McCrea says, "super goes up and down and the share market goes up and down".

"But over the long term, super is doing well," he says.

Over the decade, the average return on super has been about 8%.

"Even though we've had the tail end of the GFC and we've had COVID-19, super – because it's a diversified asset investments – has resulted in a really good return,” Mr McCrea said.

"People shouldn't get nervous if they see their balance change. But they should monitor over a long-term basis to be comfortable."

Mr McCrea also notes most super funds have a balanced investment approach that includes investments in domestic shares, international shares, and government bonds, as well as property and infrastructure.

He says most super funds hold about 25% in foreign shares, 25% in domestic stocks and then the rest of their investments are in property, infrastructure bonds, and some cash in the bank.

"It basically means you're sharing your risk so that if there's a major change in one particular asset, say domestic equities, you're then not going to see your super fall by quite as much," he said.

"The most important thing is to check regularly that money's going into your super account."

Super Consumers Australia Director, Xavier O'Halloran, also urges Australians not to get too nervous about falling balances.

"It's important to remember that superannuation is a mix of shares and cash and other assets," he said.

"It's really designed to be balanced so that it can ride out these kinds of shocks."

The ATO’s YourSuper comparison tool helps you compare super funds and ensure they are delivering strong returns and low fees.

The average fee for balanced products is around 1%.

Mr O’Halloran says there are certainly much cheaper products on the market and it can make a huge difference in your retirement savings, potentially hundreds of thousands of dollars.

"Usually, a rule of thumb is at least seven years is a good number of years to look at before you start changing around," he said, referring to younger super account holders.

And for those that are closer to retirement, or already in retirement, he suggests they check they have enough of a cash buffer built up to ride out these kinds of short-term shocks.

"Right now, you'll be looking to draw down some of your retirement savings in the form of income to pay for your day-to-day costs," Mr O'Halloran said.

"You don't want to have to be worried about what's going on in the share market in order to go and buy groceries. So, really look at making sure you've got that really basic buffer in place."

National Seniors is campaigning for a universal pension.

Why? Because a universal pension would provide a year-to-year safety net for all retirees to ensure that market fluctuations, like those above, are minimised.

Retirees will have an annual safety net and simply pay back excess earnings through the tax system. Best of all, they won’t have to waste time reporting income and assets to Centrelink – saving the taxpayer millions in administration and compliance.

If you support this idea, then join our Fairness in Retirement Income campaign today.

Source: ABC News