Do you want the good news or the bad news on how stock market volatility is impacting your superannuation?

How does share market volatility impact your super fund?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • As most investors know, 2022 has been a tough year for investors
  • But it has also been a tough year for Aussies' super funds
  • Still, there is some very good news for superannuation funds beneath the surface

As most investors would know, 2022 has been a pretty awful year for ASX shares, the share market, and investors. Unfortunately, that doesn't bode well for the superannuation balances of most Australians.

Remember, superannuation is just a vehicle for investments. It quarantines our compulsory super payments, which most of us make every time we get paid, into a low-tax retirement fund.

Most super funds invest this money into a variety of assets, including cash, bonds, property and both Australian and international shares.

Thus, the value of a superfund is usually determined by the value of the underlying assets inside it.

A girl wearing yellow headphones pulls a grimace, that was not a good result.

Image source: Getty Images

A tough year for shares… and super

Most of the time (historically speaking) shares, and other assets, tend to rise in value. That's why super funds invest in these assets to start with. But this doesn't happen all the time. And 2022 has been an especially hard year for most assets, including shares.

As it stands today, the flagship Australian share market benchmark – the S&P/ASX 200 Index (ASX: XJO) – is down around 10.4% year to date. The American S&P 500 Index (SP: .INX) has fared even worse with a loss of 22.44% in 2022 so far.

So the bad news is that most Aussie super funds would have taken a hit over the year so far, regardless of the fund's investment strategy.

According to a report from research provider Chant West, all risk categories of Australian super funds have taken a beating over the 12 months to 31 August 2022.

As expected, growth funds have been the worst hit. On average, an 'all growth' super fund has reportedly lost 6.2% of its value over the period.

This falls to losses of 4.5% and 3.7% for 'high growth' and 'growth' funds respectively.

But even 'balanced' funds (the risk orientation most super funds use) haven't been spared. Nor have 'conservative' funds. The average balanced fund has reportedly lost 3% over the 12 months to 31 August. While conservative funds are down 2.4%.

Chant West senior investment research manager, Mano Mohankumar, blamed the current economic environment for these disappointing performances. Energy prices, inflation and rising interest rates have all taken their toll on asset prices over 2022. And these have flowed into the performances of Australian superannuation funds.

So what's the good news?

So that's the bad news. Let's get to the good news.

The good news is that, despite the woes of 2022, Australian super funds have still delivered meaningful returns over a longer timeframe.

Over the last 10 years on average, all categories of super funds have delivered positive returns. Again, as expected, the higher growth funds have performed the best.

An all-growth fund has delivered an average of 10.1% per annum over the 10 years to 31 August. This falls slightly to 9.6% for the average high-growth fund, and to 8% for the average-growth fund.

Balanced funds have delivered 6.5%, while conservative funds came in at 4.9%.

Here's what Mohankumar had to say on the long-term performance of Aussie super funds:

Despite the challenging backdrop over the past two and a half years, the median growth fund is more than 10% ahead of the pre-COVID high that was reached at the end of January 2020.

This should be comforting for fund members. More importantly, funds are continuing to meet their long-term return and risk objectives.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Superannuation

A retiree relaxing in the pool and giving a thumbs up.
Superannuation

How to invest $8,000 for passive income in superannuation?

These are top investments for people who want investment income.

Read more »

Australian dollar notes in a nest, symbolising a nest egg.
Superannuation

How much do I need in my superannuation to get $1000 per week in passive income?

It pays to know what goal you're striving for when it comes to retirement savings.

Read more »

Couple holding a piggy bank, symbolising superannuation.
Superannuation

The Australian superannuation number that is more important than your balance

It is important to know exactly what you need in retirement.

Read more »

Couple holding a piggy bank, symbolising superannuation.
Superannuation

Average superannuation balance for 61 year olds in 2026. How does yours compare?

Here’s what it’ll cost you to retire comfortably when the time comes.

Read more »

A boy's eyes pop wide open as he calculates something on his abacus.
Superannuation

Can you really retire on $500,000 of super in 2026?

The benchmark says you need more. The Age Pension might have other ideas.

Read more »

Two elderly people smiling with their fists pumping and with a cape on.
Superannuation

Australia now has 9 superannuation mega funds. Here is what that means for your retirement

Australia now has 9 superannuation mega funds worth more than $100 billion each.

Read more »

A happy couple looking at an iPad.
Superannuation

What's the average Australian superannuation balance at ages 53 and 63 in 2026?

Are you above or below average? Let's find out.

Read more »

A retiree relaxing in the pool and giving a thumbs up.
Superannuation

How much should I have in my superannuation by age 52?

Do you know the difference between a comfortable and a modest retirement, and how much they each cost?

Read more »