Superannuation members who switch to conservative investment options in the face of falling share markets can end up worse off in the long term, the super industry peak body has warned.
The Association of Superannuation Funds of Australia (ASFA) has reminded members super is a long-term savings vehicle and urged them not to panic following falls in the Australian and United States share markets last week.
“When markets fall, it’s a natural human response to panic, but if you switch your money to ‘safer’ asset classes such as cash and bonds, you risk missing out on benefiting from the recovery in share prices,” ASFA chief executive Martin Fahy said.
“The tail end of the GFC (global financial crisis), when the ASX 200 Index bottomed out at 3344 points, was nearly a decade ago now. Since that time we have seen strong gains, despite periods of equity market volatility along the way, such as those we are witnessing at the moment.”
Fahy added periods of volatility naturally occur in equity markets every now and then, and according to the International Monetary Fund, there were around 10 to 11 market crises every year between 1970 and 2011.
“However, equities continue to deliver long-term outperformance for patient investors such as superannuation funds,” he said.
ASFA research shows over periods of 25 years or more average fund investment performance has been nearly 8 per cent a year, beating inflation growth by around 5 per cent a year.
Fahy said most Australians have money in default super funds that diversify risk through investing in bonds, international shares, infrastructure and term deposits.
“On average, these funds have around 23 per cent of their investments in domestic shares and a further 23 per cent in international shares. This diversification provides a safety net against market volatility,” he said.