With sharemarkets such as Australia’s and many developed-country markets, trading at or near record highs, returns could pull back.
The typical super balanced investment option has maintained momentum following last year’s bumper return of 9.6 per cent, with a return of 1.8 per cent in February, following a return of 1.1 per cent in January.
However, with sharemarkets such as Australia’s and many developed-country markets, trading at or near record highs, returns could pull back. Shares make up between 50 and 60 per cent of the allocations of most balanced superannuation investment options.Shane Oliver, chief economist at AMP, notes global shares have risen by more than 20 per cent from their lows in October last year to recent highs, with Australian shares rising by well into double digits over that time. He is expecting a continuing rising trend this year in shares; though share prices remain vulnerable to a correction, or at least a period of consolidation. It was only in 2022 that returns were last negative, when the typical balanced option in “accumulation” phase, where most people still working have their super savings, produced a 4.8 per cent loss, figures from SuperRatings show. Much of the optimism on sharemarkets is being driven by the belief that interest rates will soon be on their way down, now that inflation is coming under control. While lower rates are positive for share prices, the risk is that higher rates could help induce slower economic growth. Balanced options in the accumulation phase have produced an average annual compound return of 7 per cent over the 10 years to the end of February, and 6.7 per cent over 5 years. Joshua Lowen, insights manager at SuperRatings, says the long-term results show how resilient super funds tend to be through market cycles. Allocations to shares constitute about 50 per cent to 60 per cent of the total exposures of balanced investment options. That makes the performance of shares the main driver of returns over the longer term, with non-residential property, the next biggest driver, Lowen says.“Big super funds have a lot of money to invest and can put more of it to good use overseas,” he says.“A lot of the returns over the past 12 months have come from the big internationally listed tech stocks, with tech being less represented in the Australian sharemarket.”There is no need to get fixated on the short-term fluctuations of markets, as super is the longest term investment most people will ever have, with plenty of time to ride out the ups and downs of markets. Those closer to accessing their super should exercise a bit more caution, and should consult their super fund or financial adviser, Lowen says. SuperRatings’ figures show balanced options in the “pension” phase, those from which super is being withdrawn, returned an average annual compound return of 7.8 per cent over the 10 years to the end of February. That compares to an average annual compound return over the 10 years of 5.1 per cent for capital stable options, where the volatility of returns is less than for balanced options. Capital stable options have between 20 and 40 per cent of the money invested in “growth” assets, such as shares and non-residential property, with the remainder in lower risk investments. Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions. Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday.
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