The big falls on Wall Street overnight and the continued slide of the Australian sharemarket have guaranteed more pain for Australian superannuation fund members.
The latest data from research house SuperRatings shows the average balanced super fund fell 1.85% in January, taking the fall for the 2008-09 financial year to over 15%, following a loss of 6.4% in 2007-08.
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SuperRatings managing director Jeff Bresnahan says only a “major financial miracle” will prevent super fund members experiencing a second consecutive year of negative returns, but today’s falls on Wall Street – taking the Dow Jones to an 11-year low – have crushed any faint hope of that miracle.
Those super funds with the majority of their funds concentrated in Australian or international shares have been hit hardest by the super slump, falling by an average of 30.7% and 22.3% respectively over the past 12 months.
The winners have been those funds with a majority of their assets in cash – they have returned an average of 5.3%.
So should super investors start moving towards a cash setting?
Maybe not. For starters, it’s probably too late – given the sharp falls in interest rates around the world, cash returns are going to be lower in the next 12 months.
Bresnahan also points out that over the longer term, balanced options (which include a mix of shares, property, cash and fixed interest assets) have tended to outperform cash options.
“Cash is always a great hindsight decision, but unless 100 years of history is going to be reversed, then a reasonable exposure to other asset classes is appropriate for anyone with a time frame of longer than five years.”
His advice for worried super fund members is to do a bit of research. Compare your fund to the broader market, look at the reasons why the fund is underperforming, and examine the fund’s fee structure.
“Those who have been sitting in the better performing funds have clearly felt much less pain than those who have for whatever reason seen their fund underperform. Australians need to better understand their super to ensure they maximise their benefits.”