Superannuation returns for the average balanced fund came in at zero for the 2018 calendar year after a weak share market saw returns for December fall about 1.6 per cent, according to new data.

That is the worst return since 2011, when funds lost 1.9 per cent. That in turn was the first loss since the global financial crisis in 2008, when super went into the red by a terrifying average of 21.5 per cent.

However, there are three steps Australians can take to set their super in good health for 2019.

While some people will have been alarmed to see statements showing flat or declining fund values, it is vital not to panic at the first sign of super trouble. Remember, the system is designed to work for you over your lifetime.

“Market conditions heading into 2019 have been challenging, but members should remember that their super is a long-term investment,” SuperRatings CEO Kirby Rappell said.

“It can be tempting to switch to a more defensive investment option in this environment, but you should avoid making decisions based on emotion or short-term market movements.”

Panicking could see you choose low-growth defensive assets at the bottom of the market and prevent your account recovering when share prices start to grow. The following tables bear that out.

Over a 10-year period, quarterly super returns have been overwhelmingly positive despite the GFC, as this chart from SuperRatings shows. For both balanced and growth options, returns have been on average positive in each quarter despite share market volatility.

The chart shows the value of super fund diversification and sensible asset allocation. Over 10 years the super growth fund option has outperformed the balanced fund option, meaning younger people do better by sticking to their guns and remaining with growth-based assets, despite market conditions.

Generally, younger people should have a higher exposure to more volatile growth assets than those closer to retirement. If you’re younger you have time to recover from market setbacks and let higher returns from growth give you more value over time.

Super returns have rarely been negative

Overall the average balanced fund has only had four losses back to the first full year of compulsory super for all workers back in 1993, according to Chant West figures. And, despite the GFC weakness, funds have risen a total of 82.3 per cent since 2008 while negative returns have totalled 23.4 per cent, putting members well ahead.

Now you are not panicking, the new year is the time to ask yourself some serious questions about super.

Mr Rappell said an important question was, “Am I invested in a legacy product?”

If you have been with a fund for a long time, particularly a for-profit fund, you may find you are being slugged by higher fee levels than those available in industry funds or newer retail funds designed for the lower-cost My Super space.

High fees erode performance and underperforming funds eat your retirement. The Productivity Commission last year found four million workers were in underperforming funds, which can shave $400,000 from what a better fund would deliver in retirement.

Look at your fund’s returns over time and compare it to this list to get an idea of where you stand.

Another question Mr Rappell recommends pondering is, “Do I have multiple super accounts?”

Often a legacy of a varied working history, keeping open multiple accounts means you pay unnecessary administration and insurance costs and the Productivity Commission has said it could shave $50,000 from your retirement. If you’re in this position, close the ones you don’t want.

Choosing the right option

The final question Mr Rappell recommends is, “Am I in the investment option that is right for me?”

Think about your age and what sort of risk level you are comfortable with.

But don’t leave it to your gut. Corey Wastle, founder of Verse Wealth, says a useful exercise is to “reverse engineer”.

“Think about what you need to retire on, then look at what sort of return you need to make to get there. Then work out what asset allocation you will need to do that,” Mr Wastle said.

Professional advice could help in that process and remember, you have to be able to sleep at night so don’t choose something you can’t live with. The fact that markets have weakened after years of growth leaves opportunities.

“If you want to contribute extra to your retirement … now might even be a good time to put money in. Recent changes to super mean members can make up to $25,000 in concessional contributions, so this is definitely something every super member should think about,” Mr Rappell said.

The New Daily is owned by Industry Super Holdings