By all accounts, ASX shares have had a pretty good year in 2024 so far. As it currently stands, the S&P/ASX 200 Index (ASX: XJO) has added around a healthy 4.35% this year to date, which doesn't even include the extra boost that dividend returns would be providing. What's more, the ASX 200 has, as of yesterday, just reached a new all-time record. And that is good news for our superannuation funds.
If your super is invested in the popular 'balanced' option, it's likely that between 40-60% of your super wealth is invested in stocks. So recent record highs for both the US and ASX share markets bode well for our retirement savings.
But balanced funds are so named because they invest in a wide variety of different assets. These include shares, as we've just established. But they also include more defensive assets like cash term deposits and government bonds. This is done in order to mitigate the stock market volatility that many Australians hate to see in their super funds.
However, if you select what's known as a growth fund, rather than a balanced fund, chances are your returns over 2024 have been even higher.
That's because a growth fund doesn't attempt to mitigate portfolio volatility like a balanced fund does. Instead, it goes all in on 'growth' assets like ASX and international shares. These investments make up almost all of a growth super fund.
Balancing growth in your superannuation fund
Earlier this month, we looked at the average return for the typical balanced superannuation fund. These funds returned an average of 7.2% over the 12 months to 31 May. Over three years, the average return was 4.1% per annum. This went up to 5.1% per annum over five years and 5.3% over ten years.
But what about growth funds?
Well, using the same analysis from super research firm Chant West, we get the answer.
According to this firm, the average growth superannuation fund (containing 61%-80% growth assets) in Australia returned 9.4% over the 12 months to 31 May.
Over the prior three years, these funds averaged 5.3% per annum, rising to 6.7% per annum over five years and 6.8% over ten years.
For a high-growth fund (81-95% growth assets), the returns were higher still. These funds managed to hit 11.5% over the 12 months to 31 May. Their three-year returns averaged 6.2% per annum, and the five-year returns, 8.1%. That rose to 8.3% per annum over ten years.
Chris Brycki, CEO of Stockspot, said that the average returns from super in FY2024 should be prompting all of us to check up on our own funds:
If your balanced or growth fund returned less than 10% this year [FY2024], it's important to question your super fund about it. Are the fees too high? Are they paying fund managers for unsuccessful stock picks? Are they invested in illiquid unlisted assets that are facing devaluations?
The trend of indexed super funds outperforming active ones is likely to persist as scrutiny increases over the valuation processes of unlisted assets by regulators like APRA, and as trustees adopt more realistic valuations of these assets
So just by comparing the returns from growth and balanced funds, you can see the advantage of opting for a high-growth fund. That's provided it fits your individual financial circumstances, of course.
