Super losses not all bad

AFTER four consecutive years of spectacular double-digit returns, super fund balances are down 6 per cent on last financial year.

Super losses not all bad

IT'S like someone sneaked in and behind your back took a bite out of your ham, cheese, tomato and salad sandwich, month after month after month.

And since November last year, those nibbles made a huge dent in your superannuation fund, so that most funds are now losing money.

The crumbling stock market has wiped $70 billion from super funds so far this year, research rating firm SuperRatings said.

And after four consecutive years of spectacular double-digit returns, super fund balances are down 6 per cent on last financial year, and may end in the red for the first time since 2001-02, it said.

But there's no reason to panic, SuperRatings managing director Jeff Bresnahan reckoned.

Funds have put in such phenomenal performances over the past four years that, despite now entering into negative territory, they are still well ahead of themselves.

As the slide of both domestic and global share markets is felt by major super funds, the median fund lost another 0.86 per cent in February, according to analysis by SuperRatings.

This meant that, as of February 29, the median balanced investment option had lost 4 per cent since July 1 last year.

This meant that if your fund held $100 in July last year, it would now hold just $96, if no further contributions were made.

"The main thing is that there is no cause for panic,'' Mr Bresnahan said. "Funds are expected to go through these dips every six years or so.''

He said the last year of negative growth was in 2001/02 when funds lost 3.1 per cent. The year before, 2000/01, they earned 5.6 per cent. The year after, 2002/03, they earned just 0.1 per cent.

But after that, as the sharemarket began to rocket, returns leapt into double figures - 13.2 per cent, 13.1 per cent, 14.5 per cent then 15.7 per cent last financial year.

"When you have these massive increases you have to expect some correction,'' he said.

He said if returns since 2001 were averaged out, the funds would still be on top of the game.

"Absolutely, and by more than what you'd expect.

"Funds usually expect to make returns that equal to the rate of inflation plus 3.5 per cent. Last year they were making returns in double digits.

"Funds are still up 70 per cent on what they held five years ago.''

But this fact is overlooked by fund members, many of whom panic and want to switch to cash.

Mr Bresnahan said that while this can mitigate the loss, many investors switch to cash at the wrong time and then miss out when the market goes up again.

"People only want the good news. It doesn't matter how many times you explain that returns over the medium to long term (five years plus) are the ones that count, people will still look purely at the losses,'' he said.

"There is plenty of anecdotal evidence around when talking to major funds that some people, like they did in 2001/02, are switching over to cash.

"In reality, very few investors have a short-term time frame.''

Instead, with the way the super system is now configured, many can benefit from leaving their money in the system until their deaths, he said.

"In most cases, this is decades away and provides a significant time frame in which to enjoy long-term market gains,'' he said.

"Over many decades, history has shown that growth-style assets such as shares and property will outperform cash on the medium to long term.''

Wealth Partners financial planner Andrew Heaven said people become confused about superannuation. He said people should remember that it is a tax structure, not a product.

"It's a means of saving for retirement,'' he said.

If fund members were failing the sleep at night test, that is, they were tossing in bed worrying about their money, he said that they should have a talk with their fund managers.

"If something about the fund is worrying you, change things,'' he said. "But it's important to have a spread. Don't put everything in the one category.

"But there's no need to do anything in a volatile market,'' he stressed. ``It's about the long term, not the short term.

"If you are worried, you can change to a cash option, but no one knows when the market will bottom,'' he said.

"If you sell shares now, do you want to wait until they are more expensive to buy them back?

"If someone offers to buy your shares at a low price, as they are now, you don't have to accept it.''