CommSec Market Analyst Tom Piotrowski explains some of the drivers of the recent volatility on global share markets.
Super funds invest your hard-earned money into a combination of shares, property, infrastructure, cash, private equity, and various other assets.
THINK the sharemarket woes don’t affect you? Think again.
With the Australian sharemarket now on the edge of sliding into “bear market” territory following its loss of 17 per cent in value since its peak in April last year, the average superannuation account has lost 4.4 per cent.
For a young Australian with $60,000 in super, that equates to $2640 in losses. For someone closer to retirement with $500,000 invested, that’s a loss of $22,000 in 10 months.
Super funds invest your hard-earned money into a combination of shares, property, infrastructure, cash, private equity, and various other assets.
Data from superannuation research group SuperRatings shows that roughly 70 per cent of Australians have the default “balanced” super fund option, considered reasonably low risk, which has an average allocation to Australian shares of 27 per cent and an exposure to international shares of about 25 per cent.
However, economist Dr Michael Rafferty from Sydney University says having more than 50 per cent of super assets tied up in shares is troubling.
“Australian superannuation holders are probably the most highly exposed in their pension savings to the stock market than any other advanced country,” he said.
Dr Rafferty said the Australian system has “design issues”, with the nation allowing super funds to constantly chase yields through either shares or private equity and hedge funds, which are highly leveraged and risky.
“How did we come to this where we designed something that was meant to be a long-term savings strategy with very highly fluctuating short-term investment products?” he said.
Super funds invest your hard-earned money into a combination of shares, property, infrastructure, cash, private equity, and various other assets.Source:The Daily Telegraph
Stephen Fay, head of superannuation research at Rainmaker Group, said while many Australians had default settings on their super funds, some would have chosen the “lifecycle” option. Lifecycle funds adjust the risk strategy depending on the age of the person. Younger people tend to have a higher percentage of risky growth assets while those closer to retirement have more conservative investment options.
“A lot of funds offer quite a more detailed way for people to adjust their performance these days,” he said.
Mr Fay said one of the most important things to understand about your super was the risk-return profile — how much risk you are willing to take with your money for a corresponding return.
Rainmaker’s research shows that not-for-profit super funds, such as the five industry funds listed in the graphic above, have historically outperformed retail funds. The interesting aspect to the research is that when the market performs well, retail funds tend to outperform. However, when the market is poor, such as now, it tends to only be not-for-profit funds outperforming
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