Why is my super going down and what should I do about it?

Canstar asked Dr Di Johnson, a senior lecturer at Griffith University’s Department of Accounting, Finance and Economics, to answer some questions on how to respond to fluctuations in your super balance, why seeing a negative number on your super statement, even if it’s a temporary fall, can be particularly painful, and what you should (and shouldn’t) do about it.

Why is a drop in super returns such a bitter pill to swallow?

The pain of losing is psychologically more powerful for humans in general than the pleasure of gaining. It’s this bias that describes why we will tend to put more effort into avoiding losing something than we will in acquiring equivalent gains.

Right now though, there’s a lot going on in terms of us hearing news about investment markets falling that might be tipping our financial ‘mental load’ too far. There’s been a few years of uncertainty that have left people a bit rattled, and some are experiencing significant financial strain already.

Recent interest rate increases and cost of living pressures are likely to heighten or trigger further anxiety about more ‘bad news’.

Why are fluctuations in super fund balances so concerning for investors?

Uncertainty can be uncomfortable for a lot of people with an increasing mental load due to cost of living concerns, for example, and the last few years have provided more than average levels of concern across all areas of life.

Uncertainty regarding money and investments can be especially daunting, depending on each member’s age and balances.

But managing risk and uncertainty is the bread and butter of trustees and fund managers who work with superannuation members’ investments. Whether members are at the beginning of their career, close to retirement, or in retirement, there are well-researched strategies for allocating funds to optimise returns over time while managing risk.

What should I do if my super has fallen in value?

First, the most practical thing we can do is to decide not to act on impulse. Then, if there was one investment concept that I would want every investor to know about, it is asset allocation which is related to diversification; that is, not putting all your eggs in one basket, while optimising returns over different timeframes.

A lot of the pitfalls can be overcome by understanding if you are in a suitable asset allocation for your timeframe, circumstances and goals. Having a basic understanding of asset allocation may help to allay concerns about where your super is headed.

In super, your funds can be invested across different asset classes, such as cash, shares, property and so on. Preferably this should be matched to your goals, timeframes and appropriate risk tolerance—noting that risk tolerance may be interpreted differently for super fund investments compared to shorter-term investments outside of super.

Super fund members may have a ‘default’ (pre-chosen) asset allocation tailored to suit the timeframe they have left until retirement. There has been scope in a lot of super funds for members to choose or change their investment mix (asset allocation), which has possibly led to some choosing a sub-optimal asset allocation for their timeframe and goals.

In addition, while default options are intended to make choices in super simpler and more cost-effective, they are set up in relation to the lifecycle needs of the ‘majority’. So, if you have particular needs you want to make sure are covered, then you may want to have more information about the fund so that you can make an informed choice suited to your circumstances. This is when professional advice can be really helpful.

How can I tell if a fall is normal or something worse?

If you’re worried about short-term fluctuations in market cycles and what they mean for your superannuation over the longer-term, there are some general ‘rules of thumb’ related to different asset allocations that might be helpful to frame any short-term losses in the context of your longer-term retirement goals.

For example, for a balanced investment option, investors might expect to see between four to six years of negative investment returns over a 20-year investment timeframe, but may then get 8% to 10% per annum returns on average over that timeframe.

For a ‘conservative’ asset allocation (such as in cash and fixed interest investments), you might only expect two years of negative returns over a 20-year cycle, but also only expect around 3% to 5% returns per annum. Whereas for ‘high growth’, you might expect six years of negative returns in a 20-year cycle but returns of 10% or higher per annum over the longer-term.

Knowing the potential risk and return for different investment allocations helps us manage expectations, so that when we hear about investment rises and falls in daily news cycles we can think about them in the context of longer-term investment cycles.

Should I change how my super is invested?

Any changes to your super contributions should be considered in the context of your other financial goals, because you generally can’t access your super until you reach preservation age. If you stick to your longer-term plan for retirement, that consistency is more important in terms of reaching financial goals, and your balance will likely bounce back with the investment cycle anyway.

How can the average worker stay positive about their superannuation investment?

One of keys to success with investing in super for retirement is making regular contributions over the long-term into a suitable investment mix. The beauty of the super system is that for most workers, the system has already pre-committed regular contributions from your earnings—currently at 11% and increasing to 11.5% from 1 July 2024 before reaching 12% from 1 July 2025.

As your balance grows with the help of the compounding effect of investment returns on existing funds as well as your regular contributions, members can hopefully gain more confidence in the longer-term process.

Seeking advice from your super fund or adviser on the most suitable asset allocation for your retirement planning will make more difference to your end-goal than most people realise. In addition, members may want to check on fees and ensure any life insurances in super are suitable.

Make sure you don’t just assume fees are high or that life insurance is not needed, as there is a lot of misinformation about fees and life insurance. You don’t want to inadvertently leave yourself worse off by assuming all your super funds need to be consolidated for example.

Making contact with your super fund would be a good starting point to find out more about pros and cons before making any decisions regarding consolidating funds, changing life insurances or investment mixes.

You may not have accessed financial advice before, but super funds are increasingly tailoring support and advice, and increasingly for free, as part of the newer advice options for super fund members. Depending on the scope of advice you’re wanting, there may also be other low-cost options with your super fund for advice on more complex matters. It may feel daunting to contact your super fund, but they are there to help, so it is worth calling and finding out more.

Is it wise to check my super regularly when market falls are in the news?

This is a really interesting point. While I’m a big advocate for being engaged with finances, sometimes not knowing is less stressful and can lead to more optimal outcomes. Even professional traders are subject to over-reaction to loss aversion, with one large-scale field experiment conducted in 2016 by researchers Larson, List and Metcalfe showing that individuals who receive information about investment performance too frequently tend to underinvest in riskier assets, losing out on the potential for better long-term gain.

So, if you have made an informed and appropriate asset allocation in your super, sometimes it is better to not hear about investment information too frequently because it can lead to an over-reaction to loss aversion, particularly if you’re a long way off retirement.

Also, the price of a stock may fall at various points in time but that doesn’t necessarily mean the longer-term underlying value of the company has changed. Many investment managers will see market downturns as times of great buying opportunities. In addition, the share price does not show you the dividends that investors may be getting through profit distributions, which could be more important for some investors than the capital gains represented in the share price.

Your timeframe to retirement is important to think about in terms of allowing time to recover from cyclical losses before needing to draw down on the investment. As you get closer to retirement, the asset allocation is generally gradually adjusted. This is another example of when expert investment advice, whether from a financial adviser in your super fund or externally, can be really valuable.

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