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.
Ups and downs are a normal part of investing
With investment markets getting off to a bumpy start to the 2023/24 financial year, it’s often a good chance to remind ourselves that our investment options have been built to meet their investment objectives over the long term. Our long-term approach has been reinforced through many past market shocks, including the acute phase of the COVID-19 pandemic.
While recent financial market volatility has been largely attributed to concerns around inflation – the rising costs of living that make the value of money decrease over time – and tensions in the Middle East, short-term ups and downs are considered a normal part of investing.
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.
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 do recover - which can sometimes happen quickly - members who’ve switched to more conservative options when markets fell miss out on the recovery. This can significantly impact the long-term value of their accounts.
For example, the chart below shows the negative impact of switching from the Growth (MySuper) option to a Cash or Conservative option during the Global Financial Crisis in 2008/09.
First invested in the Growth (MySuper) option - switched with $100,000 balance during the Global Financial Crisis
As you can see above, over the long term, switching did not produce a better return*.
Calculations are based on historical crediting rates from 30 June 2008 to 31 January 2023 and an estimate for February 2023, switching on 31 March 2009 with a super account balance of $100,000. The Cash return reflects the historical crediting rates of the Cash investment option from 1 April 2009. Prior to this date, the historical performance of the Capital Guaranteed Option has been used for illustration purposes.
Past performance is not a reliable indicator of future performance.
*These figures are for illustration purposes only and are 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 deducted directly from members’ accounts.
It is important to remember that superannuation is a long-term investment
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. If you’re worried about volatility and thinking of changing your investment option, 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.
Over our 39-year history, we've delivered strong long-term outcomes for members
As the graph below shows, we have seen only four years when returns were negative.
The Growth (MYSuper) investment option return since inception up until 30 June 2023
Over the past 39 years to 30 June 2023, the Growth (MySuper) option has delivered an average annual return of 8.89% with 35 of the 39 years being positive. This example is for illustration purposes only. Balances have been calculated using financial year returns compounding annually. The crediting rate is based on returns 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.