Why you need to check how risky your superannuation assets are

Make sure you don’t end up riding a superannuation slide when financial markets suffer a major downturn. Check today how your super is invested.

Millions of superannuation fund members will sail into the next global financial downturn with investments that are much riskier than they think.

Some of the nation’s biggest super funds have dialled up their risk, and people who think they’re in a typical “balanced fund” might get a nasty shock when markets head south quickly.

A MoneysaverHQ analysis of a dozen large funds has found their default investment options differ widely from the standard balanced fund mix of 60-76 per cent in higher-risk, higher-growth assets such as shares and property.

Several hold around 80 per cent higher-risk assets, which means they will fall harder when markets tumble, and some have just 15-18 per cent of members’ money sitting in the true defensive investments of cash and bonds.

“And they call themselves balanced funds,” said JBS Financial Strategists CEO Jenny Brown.

Jenny Brown from JBS Financial Strategists says super options should be labelled correctly.

“Some of them have property, infrastructure and alternative investments in their defensive portfolios, but they are not defensive assets.”

In the global financial crisis, property trusts plunged more than 70 per cent while some infrastructure stocks dropped 50-60 per cent.

Ms Brown said higher-risk investments in super were not necessarily bad, because many members had years to ride out ups and downs, but funds should be labelled correctly.

“If it’s 80-20 it needs to be called a growth fund,” she said.

“Understand that your fund is more likely to suffer volatility than if you have a larger proportion in fixed interest and cash.

“The market is never going to go up 100 per cent of the time — you are going to have volatile periods. You need to be able to sleep at night, and make sure you understand the investments.”

SuperRatings executive director Kirby Rappell said many funds had been shifting out of low-return fixed interest investments and into alternative assets, infrastructure and unlisted real estate — some of which delivered stable, long-term incomes.

“Funds have been diversifying as they get bigger and there has been a move away from fixed interest,” he said.

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“It’s a real challenge — we have seen 10 years of positive super fund returns.

“We keep having small dips and they keep coming back, but that’s not going to last.

“It’s going to be a real challenge for super funds if we do see a more challenging investment return environment.”

Many super funds are introducing life cycle options, where investments get more defensive the closer people get to retirement.

About one-third of default super funds now had some sort of life cycle option, Mr Rappell said.

He said people needed to understand the right level of risk for them, and younger members could afford to “block out the short-term noise.”

“Someone in their twenties or thirties is 30 or 40 years away from touching their money,” Mr Rappell said.

“The key messages are simple: it’s really time to engage with your super fund, know where your money is invested, how many accounts you have and whether you have insurance.”

@keanemoney

Originally published as Why you need to check how risky your superannuation assets are