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You can protect your superannuation balance despite stock market plunges and rate rises

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

For 36-year-old hospitality worker Garth Boulton, seeing his $60,000 superannuation balance erode in weeks is “a bit disheartening”.

Garth works at a pub in Dubbo.
Hospitality worker Garth Boulton says he would like to contribute more money into his super but “it’s just not financially viable”.(Olivia Ralph)

Mr Boulton says he would like to contribute more money into his super but that “at the moment, it’s just not financially viable”.

“I’m barely making enough to make ends meet currently, and then trying to make up for the period of COVID hitting … it’s just been a bit of a struggle.”

Retiree Beverly Baker only has a small amount of money in super, so a $3,000 dip in recent weeks has been scary to watch.

Beverly at her home looking away from the camera into the distance
Retiree Beverly Baker says she’s taken “a fair hit” in her super balance because of January’s share market falls.(John Gunn)

While the superannuation sector is now worth about $3.3 trillion, most Australians are invested in default superannuation accounts, largely leaving their super funds to manage their money.

Director of research at Rainmaker Information, Alex Dunnin, says about 10 million Australians are in default accounts with investments that include a mix of shares, government bonds, property, infrastructure and cash.

He says due to recent falls on the stock market, the average loss in January was about 3.9 per cent, seeing the value of default super accounts falling by about $40 billion to about $900 billion.

That means Australians with default super have lost about $4,000 on average.

Alex Dunnin Rainmaker
Alex Dunnin says over January, the average loss per default super member was about $4,000. (John Gunn, ABC News. )

“The stock market jitters caused by inflation around the world and fears it will push up interest rates caught up with us quicker than expected.”

He notes the Rainmaker MySuper index is still up 12.5 per cent from where it was before COVID-19 hit. The share market is meanwhile only up 2.5 per cent, he says.

Rainmaker graph showing superannuation balance plunge in January 2022
Superannuation balances grew in 2021, but have dipped since the start of the year.

Australians can take steps to protect against short-term super losses

Mr Dunnin says that in 2021, the Australian Stock Exchange was up about 17 per cent, which dragged super balances up by about 15 per cent.

“The pandemic has been awful, but for super fund members, home owners 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.

Roger standing in the park.
Roger Montgomery says in 2022, there is unlikely to be double-digit growth in market investments that lift super balances. (Daniel Irvine.)

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

He notes that 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.”

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.

Message from the industry: ‘Don’t panic, super balances will grow in the long term’

Despite January’s losses, the 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.

Glen standing in a navy blue suit at ASFA offices.
Glen McCrea says people should not panic when they see super balances dip month-to-month but should watch it over the long term.(John Gunn.)

“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.

“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 that 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 per cent in foreign shares, 25 per cent 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 says.

Check fees charged as well as the performance of your super fund

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 says.

“It’s really designed to be balanced so that it can ride out these kinds of shocks.”

Xavier standing in a white shirt in the park.
Xavier O’Halloran also urges Australians not to get too nervous about falling balances but to check their fund’s performance versus fees over the long term. (Daniel Irvine.)

“Right now is not the time to panic. 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.”

He says with the ATO super fund comparison tool recently introduced by the federal government, it has never been easier to compare super funds and ensure they are delivering strong returns and low fees.

“But 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.”

He says younger consumers can monitor performance over time.

“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 says.

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 says.

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

How super fund members intend to ride out the storm

Ms Baker says she is lucky she has a cash buffer that has helped lift her out of financial insecurity.

Her father died and left her with an inheritance that has allowed her to pay off her mortgage, but she notes that many of her peers lack sufficient retirement savings and rely on the age pension.

She says, “very few women are going to end up with enough super for them to survive their old age and their retirement”, and wants, “sensible policies that look at how much super women are going to earn over their life”.

Ms Baker believes the stock market is a gamble and that, “if you can hold on long enough, your gamble may pay back”.

She says super fund members can also ensure their superannuation is invested in stocks less volatile to market fluctuations and rising interest rates.

Mr Boulton is also trying to ride out the short-term losses and is starting to monitor his super balance more closely.

He recently started checking his Hostplus app and says he will be monitoring his fund’s performance relative to the fees charged.

He urges other Australians to use the ATO comparison tool to check if they can move to a fund with better returns and lower fees.

“The only thing we can do, really, is to basically change [to a] different superannuation [fund] with better performance.”

Read More: You can protect your superannuation balance despite stock market plunges and rate rises

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