Switch Or Stay? How To Deal With Poor Super Performance

As Gemma Mitchell, financial advisor at super advisory firm Super Fierce explains, each individual’s super is invested in a mix of growth assets and defensive assets, which are expected to perform differently at different times.

These asset classes can include things such as Australian and global shares, bonds, fixed interest and unlisted assets such as real estate and infrastructure, with the exact mix of assets in your super depending on the investment option you’ve chosen. And, quite simply, the majority of those asset classes performed poorly in 2022.

Christina Hobbs, co-founder and CEO of super fund Verve Super says this was largely due to global factors such as the Russian invasion of Ukraine, which created an environment of uncertainty affecting the confidence of financial markets, and rising inflation in many countries, leading to a global increase in interest rates. “Generally, when you see interest rate increases, that will impact the market negatively,” Hobbs says.

According to Super Ratings, 2022 was just the fourth time since 2000 that Australians have witness super balances fall over a calendar year, and the first time since 2011.

Mitchell says that after a run of positive returns for super, it can be easy for people to forget that there are always going to be ups and downs. “But generally you won’t see bonds and equities having a terrible year at the same time. That was pretty unexpected, and it hasn’t happened since the global financial crisis,” she adds.

Hobbs says that in the product disclosure statement (PDS) of each investment option offered by a super fund, the fund will give you an indication of how often it expects a negative return to occur.

“For example, if you’re in a balanced or higher-risk portfolio, you should expect that within a 20-year period, you’ll probably have somewhere between five and six years of negative returns.”

She says that while Australians should rightly expect their super to increase over the long term, some ups and downs along the way are not unexpected.

So, should you be worried?

“If you’re a younger person, you’ve still got decades ahead of you for your super to grow so you shouldn’t concern yourself too much with what happened last year,” Hobbs says. “If you’re facing retirement and haven’t already shifted your funds into a more conservative option, then this situation could be a bit more scary.”

But, as she explains, even if you’re a soon-to-be retiree, you still have time on your side. “When they retire, most people are not withdrawing all their money from their superannuation at once, so the majority of their money remains invested.”

Hobbs says that just looking at one year performance is not advised by investment experts and the performance of a super fund is better assessed by looking at returns over a three, five and seven-year horizon. “If you look at shorter time periods, they can be impacted by the unlisted assets super funds are investing in getting re-valued at a different pace or time to other super funds which can cause short-term discrepancies.”

Mitchell recommends that you should look to a 10-year-plus time period when considering the performance of your super fund. “The most important thing to remember is, for most of us, super is a minimum 40-year investment. So, what happens in one year is no big deal.”

But a year like 2022 does serve as a timely reminder that your super requires attention from time to time—especially the closer you are to retirement.

Mitchell says that each year you should check that your name, address and contact details are up to date, that employer contributions have been paid and that your insurance is still adequate.

Beyond that, major life events, such as marriage, divorce, having children or a job change are all good times to consider issues such as how your super fund has been performing and whether you’re still comfortable with your investment option. Mitchell adds that notification from your fund about underperformance or a fund merger are also important times to review your super.

“There’s no hard and fast rule, but you should review it probably every three to five years. If somebody hadn’t reviewed it for five years, I’d be pretty concerned.”

But Mitchell adds that it’s important to remember that there could be transactional costs when you change investment options or super funds so it’s not something you want to be doing every six months.

Related: Super Switchers: Why Aussies Are Changing Funds

There are some indications financial markets have recovered from the shocks of 2022 and so far in 2023, super has been trending upwards.

Super Ratings estimates that the median balanced option generated a return of 3% in January, the median growth option an estimated 3.4% and the median capital stable option delivered a 1.8% return.

But the research house warns that “the continued upward trajectory in interest rates remains a key challenge for the return outlook”.

With the potential for further uncertainty ahead, it’s important to remember that when it comes to super, focussing on its long-term nature is the key to avoiding super stress.

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