The potential long-term impacts of switching investment options
Investment markets such as the Australian share market and other global investment markets have experienced large relative fluctuations in value since the beginning of 2020. These fluctuations can be attributed to continued market uncertainty resulting from a variety of issues including:
- The outbreak of COVID-19 and its ongoing impacts
- Increasing inflation and the rising cost of living
- Recent and forecast interest rate rises
- Geopolitical events such as the Russia/Ukraine conflict
Whilst past performance is not a reliable indicator of future performance, history has shown that there is no signal to indicate when the market has reached its low and that markets tend to recover over time. When markets recover, which can sometimes happen quickly, members who have switched to more conservative options when markets started to fall, miss out on the recovery. This can significantly impact the long-term value of their account.
For example, the graph below* illustrates the potential impact of a member switching out of the Growth (MySuper) option into a more defensive option during the acute phase of the COVID-19 pandemic.
A member who had stuck with the Growth (MySuper) option, compared to if they had switched to the Cash option, would have been up to $23,502 better off, even with recent investment market volatility impacting higher risk investment options, such as the Growth (MySuper) option^.
It is important to remember that superannuation is a long-term investment
When looking at the investment option your super is invested in, it’s important to consider your investment time frame and the potential future impact of making a change based on short-term share market volatility.
Periods of negative returns are expected to occur from time to time and our investment options have been constructed to meet their investment objectives over the long-term. The resilience of this approach has been reinforced through many past market shocks, including the acute phase of the COVID-19 pandemic in 2020, with the Fund’s Growth (MySuper) investment option delivering a positive return for FY2020 while many other funds entered negative territory.
Should you do anything?
If you are worried about what's happening in Australian and global share markets and thinking of changing your investment option, you should consider the following:
- What is your investment timeframe and what could be the future impact of changing investment options, particularly in response to short-term market ups and downs?
- Changing to lower risk investment options or making frequent switches can, over the longer term, leave you with lower retirement savings.
- In addition to missing out on future growth through investment earnings, there is the risk of not benefiting from rises in investment markets following a fall – this is known as a ‘rebound’. When the investment or asset value recovers, it can do so quickly.
Remember, super is a long-term investment but if you need help choosing an investment option that’s right for you, you can contact our Advice Services team for assistance.
*These figures are for illustration purposes only and do not take into account administration fees, insurance or contributions. Calculations are based on historical monthly Cbus investment option returns from 31 December 2019 to 31 May 2022, switching on 31 March 2020 with a super account balance of $100,000.
^Investment performance is based on the crediting rate, which is the return minus investment fees, taxes, and until 31 January 2020, the percentage-based administration fee. Excludes fees and costs that are deducted directly from members’ accounts.
Past performance is not a reliable indicator of future performance.
Before taking any action to acquire a Cbus product, you should read the relevant Product Disclosure Statement (PDS), Financial Services Guide (FGS), Employer Handbook and any other related documents to decide if Cbus is right for you. Call 1300 361 784 or visit cbussuper.com.au/forms for a copy. Also read the Target Market Determination at cbussuper.com.au/tmd. Call 1300 361 784 or visit cbussuper.com.au for a copy.
Cbus’ Trustee: United Super Pty Ltd ABN 46 006 261 623 AFSL 233792 Cbus ABN 75 493 363 26.