How the stock market affects your super

 

Superannuation assets totaled $2.02 trillion at the end of the June 2015 quarter, slightly down from the previous quarter, which reached an all-time record.

As the money in your super fund is invested in a range of assets – cash, fixed interest, shares and property – by your super fund, they are sensitive to market movements.

Fluctuations in any of these assets can have a significant influence on your super fund performance.

This isn’t good news when, in August, the biggest global share market drop since the global financial crisis (GFC) wiped $64 billion off the Australian share market.

Also read: Three ways to become a superannuation millionaire

According to SuperRatings, the median balanced fund fell by 2.4 per cent in August alone.

This translates to a $4,800 loss on a super balance of $200,000.

This decline represents the largest monthly loss since February 2009 when Australian superannuation funds as a whole lost $160 billion.

But how much financial pain the latest share market movement will bring to each Australia depends on how close the individual is to retirement.

Those which will need to access their super account soon are likely to have to take a bigger hit than younger Australians.

An earlier Choice investigation into the effects of the GFC on super accounts focused on the "retirement risk zone" – about five years before and after retirement – when your super account is particularly vulnerable to dramatic market downturns.

It found that a 10 per cent drop on share markets worldwide translates, roughly, into a 5 per cent decline in your super account.

And global share markets have dropped about 10 per cent since May this year.

Also read: Australians should look closely at super

And to make matters worse, while superannuation funds bounced back in October, helping to offset losses in August and September, the good news is expected to be short lived as further market volatility and ongoing concerns about global economic growth is expected to continue into the next 12 months.

“Despite the strong bounce back, negative market conditions have returned with falls across several key asset classes recently,” SuperRatings founder Jeff Bresnahan said.

He estimates the median balanced option to be down 0.6 per cent for November, to date.

“With no let up to ongoing financial volatility, super funds will continue to face challenging market conditions in the short term. Diversification will be a crucial factor in protecting super fund balances,” Bresnahan said.