Should we be worried about super losses? What to do after a year of bad returns

Collage of a woman jumping between grey blocks like year on year super returns.

It’s not uncommon for superannuation funds to lose money for a year or two. After all, investments don’t guarantee returns, and super funds can be just as vulnerable to economic headwinds as property values and shares.

Research house SuperRatings claims that even popular balanced growth options – which combine low and high-risk investment strategies – reported a -4.8% return in 2022. 

So how worried should we be about super losses?

Bad year, or bad super fund?

Man in a VR headset analysing his super fund.

One of the key principles of investing is to play the long game. “Time in the market, not timing the market,” as the saying goes. 

While superannuation funds on the whole have reported a strong long-term average return of 6.1% since 2000, the declines of the past year have caught many savers off guard. No one wants to see their super balance go down, especially not when inflation, interest rates, and the rising cost of living have eaten into our savings. 

But the same budget drains we face daily have caused leaks in super funds, as well. SuperRatings points to falling property values and international shares as the primary culprits, as these industries tend to make up the bulk of super fund investment strategies (usually around 70% for balanced funds, while the rest is fixed interest and cash – neither of which sufficiently cushioned last year’s falls).

The losses may be particularly troubling for older Australians, too: with retirement looming (or already in progress), yearly returns can matter a great deal to someone’s livelihood. Younger Australians, on the other hand, still have quite a few working years to absorb the losses. 

Now that a new year has turned a corner, SuperRatings forecasts a few bumpy months ahead before the economy levels out. Movements to the cash rate remain a key driver of returns – thankfully, big banks like CBA and Westpac predict an interest slowdown into 2024, alongside cooling inflation. 

SuperRatings expects this will bounce returns back to 4 - 5% over 2023, though they may still lag behind headline inflation.

“It’s a good time for members to consider the level of ups and downs they are willing to tolerate and do a health check on their fund across performance, fees and insurance,” SuperRatings advises. These metrics can help determine whether your fund had a bad year – or bad strategy.

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