Aussies are being warned against switching their super to a more conservative investment option in response to volatile financial markets. (Source: AAP)
Aussies are being warned over a simple superannuation mistake that could cost them thousands of dollars each year. The Aussie sharemarket is down $200 billion since the start of the Iran war, which has meant workers have seen their retirement savings take a tumble.
When markets fall, the temptation to switch your super to a conservative investment option like cash can be overwhelming. But new analysis by the Super Members Council has laid bare how this could leave you worse off.
In the worst case, someone with a $100,000 balance who switched to cash at the Covid-19 trough could be around $50,000 worse off over five years.
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If you switched during the market volatility sparked by US President Donald Trump’s tariff policy last year, you could be around $7,000 worse off over just one year.
Super Members Council executive general manager of strategy and insights, Matt Linden, said switching during a market downturn could mean you potentially lock in the losses and miss the recovery.
“Market movement is uncomfortable, but switching during a downturn is like turning down a side street to avoid traffic right before the main road you’re on clears — it usually leaves you worse off in the long run,” he said.
“For most working super fund members, recent market movements will have little impact over the medium to longer term.
“For current retirees or pre-retirees heading towards retirement soon, money that remains in super for many years enables short-term losses to balances to bounce back.”
Financial adviser James Wrigley has also warned nervous Aussies against switching their super to cash.
“People feel like they need to do something and it makes them feel good that they’ve done something,” he told Yahoo Finance.
“But very few people know when the top is and when the bottom is, to sell out at the top and buy in at the bottom.”
Last week, superannuation research firm SuperRatings said it had already seen significant movement in share markets over the beginning of March, with super balances estimated to sit below where they were at the start of February.
The median balance option is estimated to have fallen by 1.6 per cent over March, while the median growth option lost 2 per cent over the same period.
On Friday, it was revealed that more than 6 per cent had been wiped from the combined value of Australia’s 500 largest listed companies since the Middle East conflict erupted, wiping more than $200 billion from its combined $3 trillion market cap.
“While we have yet to fully see how returns will respond, it is worth remembering that when markets are more turbulent, the focus should be on long-term strategy and outcomes to ensure you reach your retirement goals,” SuperRatings director Kirby Rappell said.
“For any members that are concerned about their fund’s performance it may be helpful to seek advice before making a decision.”
Super funds will often offer advice, or you can seek professional advice.
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