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super funds

Your superannuation. Can you sleep at night?

Glenn Fairbairn
Director/Private Client Adviser
6 Jul 2018

With the 2017/18 financial year behind us many people will take a keen interest in the returns their superannuation funds have delivered over the past 12 months.

Research and consultancy firm, Chant West, have reported that, on average, superannuation funds are likely to deliver a positive return for the ninth consecutive financial year. The only other period of sustained positive returns was between 1992/93 to 2000/01. Chant West estimate that the median return for ‘growth funds’ is likely to be around 9.3%.

While the underlying performance of a superannuation fund is an important consideration when considering whether to stick with your current fund or rollover, it is essential to dig a little deeper to understand what is driving the performance of the better performing funds and whether the investment strategy implemented by these funds is appropriate for you.

Unfortunately, as humans, we tend to chase last year’s winners. Over the years I have seen many people increase their risk tolerance when markets are going up but become extremely risk averse when markets fall.

When sharemarkets are rising, as they have done over the past 12 months, the higher your allocation to growth style assets (e.g. shares and property), the better your performance would have been.

The Top 10 performing growth funds for the past 12 months delivered returns ranging from 12% to 14%. Great! BUT these funds had an average exposure of around 73% to shares and property. While such a high allocation to these asset classes is good news in a rising market, what happens when the market moves down? Assuming you have 70% of your superannuation benefits invested in growth assets and the market experiences a correction of 20%, would you be comfortable seeing your balance reduce around 15%?

A tailored investment strategy should be constructed to achieve your specific goals and objectives with the minimum level of risk. Striving for the highest possible return could expose you to unnecessary risk and fail to adequately protect your capital.

The next time you are comparing superannuation fund returns remember to take a closer look at where your funds are actually invested. Consider the impact if markets go against you. Could you still sleep at night?

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.