What investors should know before switching super fund settings

Investors tempted to change settings after a poor run last year should consider these factors to avoid making a costly mistake in the long run.

The less you look at your investments, the less you will be disappointed, and the less likely you’ll sell at the wrong time, says AMP Capital’s Shane Oliver

Soaring consumer prices and highly volatile investment markets are combining to trigger so-called switching activity inside the nation’s biggest super funds.

But should you switch just because your super recently lost money for the first time in years?

The year to June might have been a loss maker for nearly every super fund, but if we look at the swing factor, it is often based on the performance of shares. They have already recovered substantially in the new financial year.

In fact, ChantWest has reported funds bounced back strongly in the month of July with returns that recovered most of the 3.3 per cent annual loss they suffered over the 12 months to June 30.

Anyone who went and switched money out of shares – or growth – options in super at the start of the new financial year may be regretting their choice.

The rebound in the local market confirms the point made by almost all advisers – setting super is not about today or tomorrow, it’s about lifetime returns.

The secret of successful super investing is the compound growth all assets will achieve over the long term. Many top advisers suggest that to optimise your chance at success, decide what sort of investor you are and stick with that disposition for your entire career. The danger is that if you move between conservative and growth settings every time there is a drama you are heading for trouble. That’s because each time you switch, you may face both fees and an upset to the momentum of long-term growth every fund needs.

Perhaps one of the more underestimated issues in contemporary investing is the difficulty faced by investors who are constantly bombarded with information – sometimes from their super fund, sometimes from research agencies who now report on a monthly basis. It was not that long ago that superannuation funds reported their numbers to members once a year. A lot can happen in 12 months. Share markets could rise, fall and rise again over the period. For today’s super investor who can become obsessed with the ability to see how their super is performing it feels like a roller coaster. But it was always a roller coaster.

If you only looked at your super once a year the returns would still be the same and you would probably make around 6.5 per cent over the long term.

As AMP’s chief economist Shane Oliver put it recently: “The less you look at your investments, the less you will be disappointed, and the less likely you’ll sell at the wrong time.” “Selling shares or switching to a more conservative superannuation investment strategy whenever shares fall sharply just turns a paper loss into a real loss with no hope of recovering. Even if you get out and miss a further fall, the risk is that you won’t feel confident to get back in until long after the market has fully recovered,” he said.

Once you have selected a fund – hopefully after having a look at the MySuper performance tables on the MyGov website – you need to choose from the menu of choices ranging from very conservative to riskier, higher growth products. Most at large funds such as AustralianSuper tend to choose the balanced option.

Since the government updated super rules, workers now get stapled to the very first fund they join – unless they nominate to change funds when they change jobs they are likely to end up staying with the first fund they ever chose as their fund for life.

Similarly, the choice of fund option from a chosen fund’s menu list is equally important.

Industry research continually shows that how much money you make with investing comes down largely to asset allocation – what amount of money you had in which areas over the years.

Finally, the only widely accepted justification for switching your super settings is linked with your age. The older you are the more conservative you‘re investing should be. This is to eliminate the risk of a string of losses.