Superannuation funds remain in the black year to date, the analysts at Chant West say, following a sharp sell-off in equity markets in March in the wake of the military action in Iran.
The Chant West team estimates that the average Australian median growth fund returned 1.1% in February, following a 0.4% gain in January.
Big falls in March
Funds have since swung sharply into the red, however, following military action from the US and Israel, which launched attacks on Iran in late February.
Chant West estimates that the median super fund has already retraced 3.8% in March.
The good news is that funds remain in positive territory so far this financial year, albeit only to the tune of about 2.5%.
Chant West, head of superannuation investment research, Mano Mohankumar, said it was important to keep a cool head and a long-term focus when it comes to super.
As he said:
It’s critical for members to keep in mind that super is a long-term investment and there will inevitably be periods of market weakness through their super journey. While we recognise that members have different levels of comfort when their balance goes backwards, the majority can afford to remain patient, including many older members. A lot of Australians don’t take out all of their super as a lump sum at retirement, meaning a substantial amount is likely to remain within the super system in the pension phase, often for many years. In reality, their investment horizon is longer than they might think.
Avoid trying to time the market
Mr Mohankumar said it was also important not to make rash decisions at times of share market volatility.
When markets fall sharply, some people consider moving to lower-risk options or cash, with a view to moving back later, generally out of fear or as an attempt to time the market. Far more often than not, that approach results in poorer long-term outcomes than if they stay the course. Not only do they crystalise their losses, but also risk missing part or all of the subsequent market rebound. We would encourage those members who are thinking of switching options to see a financial adviser.
Mr Mohankumar said super funds delivered strong results in each of the previous three financial years: 9.2% in FY23, 9.1% in FY24, and 10.4% in FY25.
He said such high returns should not be expected every year.
Chant West said that since the introduction of compulsory super in July 1992, the median growth fund has returned 8% per year.
The post How much damage have recent share market falls done to superannuation balances? appeared first on The Motley Fool Australia.
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