Many employees have seen their superannuation balances take a dive over the last month. The coronavirus-induced market downturn has put serious downward pressure on retirement savings.
So what should you do if your superannuation has taken a dive?
Take a moment
Don't make unnecessarily hasty decisions in reaction to your latest superannuation statement. Remember that super is a long term investment. The aim is to provide you with funds for retirement, so you may have a long way to go before you'll start drawing on it.
Across that time, you should expect fluctuations in returns. Some years you will experience positive returns, some may be negative. It just so happens that we're in a downmarket right now. Over time, however, the gains should come out on top. Volatility is a fact of life in the share market but over the long term returns tend to be positive.
If you invested $10,000 in the S&P/ASX 200 Index (ASX: XJO) in 1990, it would have grown to around $140,000 by 2019. That gives an average annual return of around 9%. But it wasn't 9% every year. During that period the market experienced downturns including during the Gulf War, the Russian bond crisis, the dotcom crash, and, of course, the GFC. But over a long period, returns were positive.
Check what you're invested in
Check which option you have invested your superannuation in. Are you in a conservative option or a more aggressive option? Aggressive options have a higher proportion of assets invested in ASX shares, which have taken a hit.
Conservative options tend to have more investments in cash and bonds, and less in ASX shares. This means conservative options will tend to be less volatile and fluctuate less over time. But they will also tend to provide lower returns over a long period of time.
If you are younger, a more aggressive option is likely to be appropriate as you have time for returns to bounce back after a downturn. As you near retirement, however, you will likely have less tolerance for large movements in your superannuation value, so a conservative option may be more appropriate.
Think twice
If you're thinking about switching options into something super conservative, like cash, think twice. Doing so will crystallise losses, and means you may miss out on future gains. It can be tempting to want to take action when markets go awry, but sometimes it's better to hold your course.
That doesn't mean you shouldn't review your superannuation arrangements regularly. In fact, now may be the perfect prompt to take stock of your options. It's a chance to do a health check of your fund and its investment options and make sure your super strategy is right for you.
