How to safeguard your super from sharemarket volatility

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Relaxed might be the opposite of how you’re feeling about your retirement right now.

Since the beginning of the financial year, the sharemarket has alternately taken off then tanked, not just dramatically but almost daily.

The sharemarket is fluctuating wildly but super seems to be shaking it off for now.Credit: Peter Braig

The headlines have included this one: “Australian stockmarket sheds more than $100 billion in biggest fall since the lockdown era.”

Then barely weeks later there was: “Why Australia’s share market is near record levels ... despite ‘high risks’ to the economy.”

Well, by the 3.7 per cent sell-off we saw on August 5, a thing called the VIX index of fear − and greed − had spiked to 39, which is triple its typical May and June number.

It surged afresh last week, to 22, with the ASX/S&P 200 falling another 1.9 per cent that Wednesday.

The VIX, or volatility, index is a great gauge of how investors are feeling. And that’s nervous.

What’s the problem?

On a macro level, the problem is painfully high global interest rates, stubborn inflation … and recession fears Stateside.

But on a micro, much-more-personal level, the problem is your super.

Even if you don’t hold shares directly, you do hold them in your retirement fund.

And particularly for those approaching retirement, wild fluctuations can be stressful indeed.

What you can do about it

Firstly, we’ve just learned that super is, for now, shaking all this off.

The median balanced super fund, in fact, returned 0.4 per cent to members in August, says SuperRatings. Because, while markets trended down strongly in the first two weeks of the month, they recovered swiftly in the second two.

For the financial year to date (July and August), it’s delivered an impressive 2.4 per cent.

So far, then, so super good.

But how can you get relaxed and comfortable about your super in a market that looks to be ongoingly volatile?

• The first key to comfort is that earlier word: balanced.

It will serve your nerves well to remember that shares are only one part of your super fund – you will also have fixed-interest assets like bonds, perhaps some property and infrastructure assets, and a bit of cash.

A fund is balanced if it has between 60 and 76 per cent invested in shares, according to SuperRatings’ designations.

And know this: the other assets can anchor a portfolio when the investment waters are rough. That’s their point.

They may also perform inversely to share, giving you gains when there is “pain” elsewhere. Again, that’s their purpose.

• You need to get your investment mix right for your age.

Generally speaking, the younger and further you are from retirement, the more you can afford to have in growth assets like shares.

As you get older, you might gradually phase further into fixed interest or other assets that are less volatile and more aimed at income producing.

But there is also risk in this – the risk that your money won’t grow by as much as you need to support your lifestyle. After all, you might live 30 years in retirement … it’s possible.

• Check your super fund’s performance pedigree.

It is far easier to sleep at night if you know your fund manager “never sleeps”, or more accurately: is always on the investment case for you.

While it’s worth checking if a balanced fund at least made the 8.8 per cent-return grade for the median last financial year, what you really want is a fund that can stay afloat and even rise to the top in any market conditions.

That acid investment test − the important one for your anxiety − is 4.7 per cent gains a year over three years, 6.1 per cent over five years and 7 per cent over 10 years.

If your fund hit and exceeded these returns, it’s steered you successfully through some challenging waters.

And a very important final investment tip: there is a real and present danger about getting spooked by sharemarket headlines, abandoning “ship” and switching to cash.

Inevitably, when investors en masse have done this because it’s become just too psychologically uncomfortable to stay invested – think the global credit crack up and pandemic panic – it has worked out badly.

It’s far too easy to sell at the bottom of an investment cycle and it’s virtually impossible to pick when that cycle is about to turn around … and buy in time.

Instead, most investors get back in when there is yet again exuberance around the sharemarket … when it’s expensive.

So they crystallise their losses and miss all the rebound growth.

Which brings us to …

• Flip your mindset and buy the dips. We all love a sale so start thinking of market downturns as such.

Extra salary sacrifice or after-tax contributions right now could add even more money to your retirement.

As Kirby Rappell, executive director of SuperRatings puts it: “No matter what happens today or tomorrow, the next day, you need to think about that long term.

“I mean, a market pullback is really hard in the short term, very stressful. But over the long term, it’s a blip along the way.”

Use these techniques today to help you hold your nerve so that you hold on to as much of your super as possible.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.