It’s okay to freak out about your superannuation balance. But here’s what you shouldn’t do.

It’s okay to freak out about your superannuation balance. But here’s what you shouldn’t do.

This article was created in conjunction with one of our partners.

This content was created in partnership with Australian Retirement Trust.

When you last checked your superannuation balance, it might not be as rosy as expected.

Superannuation funds are heavily weighted to bonds and the stock market, so they're subject to the risk of market volatility, currently driven by fears of economic weakness from the war in Ukraine and soaring interest rates and inflation. Even people with a more-conservative superannuation option like 'balanced' or 'conservative' are likely to see significant declines over the past financial year.

What can the average person do with market volatility dominating the headlines? Here's what the experts say.

Time in the market – not timing the market

Tribeca Financial chief executive officer Ryan Watson says it's normal for people to feel 'panicked' after seeing their superannuation dip – especially after so many years of benefiting from a buoyant market. 

But he cautions against making drastic changes to your superannuation strategy, saying trying to pick the market can result in further losses. 

"Sometimes an advisor will tell you to do nothing, and that can be the most valuable advice," he says. "It is important for people to remember the greater context around superannuation being for retirement, it being a long-term investment. The best anybody can do, especially in a downturn, is stay with the current strategy."

If you change your risk profile from, say, 'Growth' to 'Balance' during a downturn, you risk locking in losses that may be harder to recover from when markets bounce back.

"We see many unadvised people who act emotionally and change their investments to cash at the bottom of cycles. Thus there's no way to capture that upside when invariably the market recovers."

Sunsuper and QSuper merged on 28 February 2022 to create Australian Retirement Trust, one of Australia’s largest super funds, taking care of over $200 billion in retirement savings for more than two million members. 

Australian Retirement Trust chief economist Brian Parker notes that it is important to remember super is the longest-term investment many of us will ever have. 

“Periods of short-term volatility where share prices fall sharply can be very unsettling for super fund members. We know, though, that the long-term reward for tolerating this volatility is higher long-term returns. Ultimately investors are rewarded for risk – that’s how markets work over the long term,” he says.

Focus on the fundamentals

If you haven't logged into your superannuation account for a while, it's a good idea to ensure the fundamentals are sound.

The Productivity Commission calculated that just 0.5 percentage point increase in fees can leave a full-time worker $100,000 worse off by retirement. 

"For the younger investors, I suggest they look at the fund they're in because fees taken from funds over time can add up, especially over 40 to 50 years," he says. "And it's probably a good chance for them to revisit their risk profile and the reasons why they chose it in the first place."

An underperforming super fund could cost you hundreds of thousands of dollars over the course of your working life. Mr Watson adds that the main factors to consider are a fund's administrative fees, different investment options (reviewing past performance) and the insurance benefits. 

"Those three things, if they can get them pretty fit or looking pretty good and pretty lean, will give them the best chance of maximising their financial superannuation balance as they head to retirement," he says.

The Australian Taxation Office offers a handy super fund comparison tool to see how your fund is doing on performance and fees.

Now might actually be a good opportunity for investment 

Your super account is made up of units. When markets fall, those units are lower in value.

Alex Jamieson, a financial adviser with AJ Financial Planning, says astute investors see opportunities to capitalise on the downturn.

"Sophisticated investors take advantage of the opportunity to capitalise on the situation, knowing that historically markets have bounced back regularly over the last 100 years," he says. "Younger investors especially might want to take advantage of these lower unit prices."

No matter where the market cycle is, Mr Watson says additional pre-tax contributions can make a big difference to take advantage of the compounding effect and the tax benefits.

"I strongly suggest they consider maxing out their ability to contribute to super in a tax-effective way. The reason being, it's 15 cents on the buy-in and then over time, there's no income tax on the income, or that's drawn out of it," he says. "People can minimise their tax and grow their superannuation balance – you really get a double hit when you do it that way."

If you're on the cusp of retirement…

As you near retirement, you can choose to be more conservative with your investments to reduce the risk of your balance going down. Many people choose to keep their investments in growth options seeking higher returns. There is no one correct approach.

"But that shouldn't depend on what the market is doing," Mr Watson says. "Generally speaking, as people get closer to retirement, they should still be looking at a medium-term time frame, but they should also be looking at how much risk they're taking with their investments."

If you feel nervous about your retirement balance, Mr Watson says it's a good time to reappraise your risk profile, get across your balance and take stock of your situation.

"Pre-retirees should look at what their household needs, their household's goals and objectives. And then, put the blinkers on. Try to drown out the noise of the outside world and focus on who they are and their goals."

Lastly, Mr Watson says it's wise to talk to a financial adviser before making any changes. They can help you to make the right investment choices for your personal goals and risk appetite.

Join Australian Retirement Trust, one of the largest super funds, taking care of over $200 billion in retirement savings for over 2 million members.