Super fund members are continuing to harvest the sharemarket turnaround from COVID-19, with balanced/growth funds averaging returns of 1.7 per cent in August, according to Chant West.
The positive month was the 11th consecutive monthly gain and brings the cumulative return for the first two months of the financial year to 2.8 per cent, the research group found.
If growth were to continue at that level, funds would return 16.8 per cent for the year on the back of 18 per cent last year.
However such strong double digit returns are unlikely to be achieved two years in a row.
SuperRatings, which splits returns into accumulation and pension mode, found similar results.
They reported growth of 1.9 per cent for the balanced or growth option (61 to 80 per cent growth assets) and 1.7 per cent for similar funds in pension mode.
Retirees did well
Pension returns tend to be slightly lower because they are more exposed to conservative assets that deliver steady cash returns.
Using Chant West’s figures a fund valued at $250,000 last July would now be worth $302,000.
Chant West Senior Investment Research Manager, Mano Mohankumar, said the continued growth in sharemarkets was pushing super returns higher with continued market rises for August.
“The main drivers of growth fund performance are listed shares and they were up again in August,” Mr Mohankumar said.
“Australian shares rose 2.6 per cent over the month while international shares advanced 2.7 per cent in hedged terms and 3.1 per cent without hedging.”
Hedging is insuring investments against movements in currencies which distort investment returns.
Indeed, shares were the only drivers of super growth, with Australian bond returns flat and international bond returns down 0.2 per cent.
Sharemarket: Stunning results
The strength of the sharemarket since the pandemic lows has been so pronounced that balanced fund returns are up 29 per cent since last April
“Not only have we recovered all the losses incurred in the early COVID period, but we’re now sitting about 14 per cent above the pre-COVID crisis high that was reached at the end of January 2020,” Mr Mohankumar said.
Those returns have been earned despite the fact that the pandemic continues to cause massive disruptions to lives and economies across the globe.
SuperRatings executive director Kirby Rappell said strong returns demonstrated the benefit of staying invested for the long term and not shifting allocations at the first sign of trouble.
“We looked at the impact of switching out of a balanced or growth option and into cash at the start of the pandemic and found that those with a balance of $100,000 in January 2020 and who switched to cash at the end of March would now be between $22,000 and 27,000 worse off than if they had not switched,” Mr Rappell said.
The situation is even starker looking back over 15 years.
A typical balanced super option with between 61 and 80 per cent growth assets valued at $100,000 back in July 2006 would have more than doubled in size to $247,557 at the present, SuperRatings found.
A higher growth allocation would have turned into a balance of $254,006.
Share focused options have delivered the highest returns, with the median Australian shares option growing to $276,099 while the same allocation in international shares would have grown to $271,051 over the same period.
Meanwhile a fund invested totally in cash would be worth only $151,158 today.
Remember these figures do not include additional contributions along the way, so your fund might look like it has grown more than the examples shown if you have been in the workforce since the 1990s.
It’s a good idea to check your fund’s performance against its counterparts using the ATO comparison tool.
It’s not all about the bottom line
However Mr Rappell said its best not to just focus on returns.
“Superannuation is bigger than just returns,” he said.
“It’s a good idea to consider a variety of factors such as fees, investment choices and insurance when deciding whether a fund is right for you.”
Most funds will offer advice for free or at a low cost and they can help you with issues like contribution levels, investment options, insurance in the fund and the transition to retirement options.
Recent returns have been so stellar that last year was the second-best year since the compulsory superannuation system began back in July 1992.
“Average returns have been 8.3 per cent annually since then but members shouldn’t expect that recent double digit returns are normal,” Mr Mohankumar said.
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