Finance Your Super Superannuation returns turn negative with share market storms

Superannuation returns turn negative with share market storms

Super declines.
Share market falls have put super returns into negative territory. Photo: Getty
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When Garry Manou looked at his superannuation statement last month he got a nasty shock. “It was down between $30,000 and $40,000 and it was scary,” he told The New Daily.

He is part of a growing number of Australians who have seen their super balance dwindle throughout 2018. The cause? The stock market.

Mr Manou was at the end of his career, and under immense pressure: “I retired Friday last so I was hesitant, wondering, ‘Had I done the right thing? Had I pulled the pin too early?'”

The situation was critical, as his wife Janelle will also retire in the next few months. However he is philosophical about the situation, now saying, “The thing to do is brace up and support yourself through savings if you have to”.

Janelle and Garry Manou got a nasty shock with a big fall in their super balances.

His adviser told him not to panic, and to enjoy life, as markets will recover over time.

Mr Manou, like millions of Australians, has seen his super fund shrink because of recent stock market weakness. The median growth fund declined 3 per cent in October, another 0.5 per cent in November and a further 0.5 per cent – or more – so far in December, according to research house Chant West.

That has pushed returns backwards for the financial year by about -0.3 per cent, with results for the calendar year likely to be a barely positive 0.6 per cent, according to Chant West research chief Mano Mohankumar. That compares with the stellar returns of 9.2 per cent for the June year and 12.5 per cent for top-performing fund, HostPlus, over that time.

In real terms, it means a median growth fund valued at $150,000 will likely return $900 to a fund member for the calendar year whereas for the June 2018 financial year the return would have been $13,800. If the member had been in HostPlus, the return would have been a whopping  $18,750.

Growth funds typically have between 60 per cent and 80 per cent in market-based growth assets.

The good times have rolled

The lower returns should be a reminder that super’s performance in recent years has been stronger than usual.

“People need to remember that growth funds are not designed to return 9 to 10 per cent year in, year out. It’s more like 5.5 to 6.5 per cent,” Mr Mohankumar said.

But as this table shows, the results have often been higher than that over the past decade:

Stephen Anthony, chief economist with Industry Funds Australia, said a dip in super returns should not cause people to panic.

“Investment markets have hit a volatile patch, which may continue for some time. For the overwhelming majority of people in well-designed balanced funds, it is well to remember that superannuation is a long-term investment and they should not act precipitously,” Mr Anthony said.

As the below chart shows, median growth funds have almost doubled in value over the 10 years to October 2018, so holding your nerve should win out in the long term. If you panic and go to cash, you will probably miss the rebound and you’ll feel the mistake into retirement.

For those approaching retirement and transitioning from accumulation to pension phase in their super funds – like Janelle and Garry Manou – the situation could be more complicated.

“They should seek professional advice,” Mr Anthony said.

The losses in recent months were driven by equity markets.

“Equities make up about 50 per cent of the average growth fund portfolio, and Australian shares have declined 4 per cent over the calendar year,” Mr Mohankumar said.

“For international shares, it’s about 3.5 per cent,” he said.

Growth funds typically have half their equity allocation in each category. However, some of the losses in international shares have been made up by falls in the Australian dollar from US78 cents to US72 cents, which has boosted the value of foreign assets in local currency.

Political worries are a driver

Volatile markets have been driven by global factors, said Nicki Hutley, economist with Deloitte Access Economics.

“We’re in for quite volatile times economically and politically,” Ms Hutley said.

“The play between [US President Donald] Trump and Xi [Jinping, China’s leader] is an ongoing issue. Then there’s Brexit, weakness in some European economies and local issues like housing prices.”

Independent economist Saul Eslake said Australia was now more vulnerable to shocks in the global economy because of higher public debt and lower interest rates than at the start of the financial crisis.

“The history of the last 27 years would show we have avoided recession. I don’t think it’s as certain now, given we have less policy ammunition,” Mr Eslake said.

The Australian benchmark All Ordinaries Index closed at 5727.3 on Wednesday and is down 10.9 per cent since the August peak.

The New Daily is owned by Industry Super Holdings

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