Rating company,
Before I expand on this prediction, I want to explain how the reporting of fund returns works, and what it means for your account balance.
Although quoting percentages is the easiest way to track performance, and to compare one super fund’s performance from another, the most important measure for an individual fund member is the dollar change to the member’s account balance.
For example, if your super account balance is $6,000 and your super fund returns 10% after fees and taxes, then your super account earns $600. If your friend’s account in the same fund is $60,000 then your friend’s super account earns $6,000. You may both receive the same percentage return, but the dollar impact of that return is very different.
Expect to wait a few years to catch up on GFC losses
According to rating company, SuperRatings, fund members in large funds lost three years of earnings and contributions due to the Global Financial Crisis (GFC). If you invested $1,000 in July 1992 (start of Superannuation Guarantee), those savings grew to $3,331 as at 30 September 2006. According to SuperRatings, three years later, as at 30 September 2009, that investment was still worth $3,331.
What this scenario means is that the GFC has effectively turned back time, and fund members have lost three years of investment returns and contributions. Before fund members can start making money again, they need to make up these lost returns and contributions, which is likely (in my view) to take five to six years, assuming fund members contribute at the same levels and are invested in the same investment option. If fund members contribute more, or potentially change
So, reporting that super funds are going to deliver double-digit returns for the 2009 calendar year doesn’t really tell the full story. If your super account has fallen from $100,000 to $60,000 since 2007, then 10% of $60,000 takes your super account to $66,000 – a big gap from your previous balance of $100,000 but still better than losing more money.
If you want to find out about the impact of the GFC on your super account, contact your super fund. For more information on comparing the performance of super funds check out the article Mirror Mirror… what super fund is the best performing fund of all?, but note that the performance tables contained within the ‘Mirror Mirror…’ article relate to 30 June 2009 financial year.
Double-digit returns for 2009 calendar year
According to SuperRatings, the expected performance figures for the median
The median balanced option that SuperRatings refers to is a ‘balanced’ option with exposure to growth style assets of between 60% and 76%. Approximately 80% of Australians in our major super funds are invested in their fund’s
The actual returns for the 2009 calendar year won’t be known until January, but the returns for the median balanced option for the period ending 30 November 2009 are set out below:
| Returns for Median Balanced Option | |
| 1 month (month of November 2009) | 1.31% |
| 3 months ending 30 November 2009 | 2.76% |
| Financial year to 30 November 2009 | 9.55% |
| 12 months ended 30 November 2009 | 10.07% |
| Rolling 3-year-return to 30 Nov 2009 | 1.08% |
| Rolling 5 year return to 30 November 2009 | 4.86% |
| Rolling 7 year return to 30 November 2009 | 6.46% |
| Rolling 10 year return to 30 November 2009 | 5.54% pa |
Source: SuperRatings
Here is some food for thought.
The rolling 10 year return is 5.54%
The average RBA cash rate for Jan 1992 – Oct 2009 is 5.56%
(This includes GFC rates down to 3%)
The period Jan 1992 – Dec 2008 is 5.74%
Note: The RBA attempted to start tracking the cash rate from around 1990.
It took them a couple of years to bed down to around 5% from a high of 17.5%.
Because of this I disregard 1991 and 1992 figures.
You can expect to get at least 1.00% above this for bank term deposits.
Even more if you walk past the big guys and into a regional bank.
Cheers
Some more food for thought, following are returns (in order of performance) for the 2009 calender year for a range of asset sectors (these are the returns from quasi-index/passive fund manager Dimensional Funds Australia); the returns on your superannuation fund depends on how much you are exposed to each of them:
Australian small companies: 64.13%
Australian value companies: 43.57%
Australian large companies: 36.36%
Emerging markets: 35.43%
Fixed interest: 6.44%
Global value companies 5.18%
Global small companies 4.37%
Cash: 3.82%
Property (listed managed funds – so retail, commercial, industrial, rural): 3.04%
Global large companies: -0.76%
To understand what your returns were, you need to understand what your fund was invested in. For far too long, we as Australians have been too ignorant about our asset allocation. The number of people in “default” funds is testament to this, but I’ll take a perspective pill and realize right now that anyone visiting this website and reading this post is taking more responsibility for their own affairs/life/direction/success.
What irritates me is the concept of a “balanced fund”. A balanced fund has a “BALANCE” between growth assets (shares and property) and defensive assets (fixed interest and cash) – a balance would be 50:50, 50% growth assets, 50% defensive assets.
Superatings categorise any fund with up to 76% growth assets as balanced. This is ridiculous and irresponsible. Trustees have too much power – they are taking risks that members are not aware of. They think they can predict the future so say “ooooh, Australian large companies will go good this year, let’s increase our exposure”. Our funds management industry is plagued by crystal ball gazers who get it wrong time and time again.
Long story short, this article is flawed Trish. The returns are for growth/assertive investors, not balanced investors. Let’s call a spade a spade here.
Hi Matthew
Thanks for your comments. The description of investment options is definitely a work in progress for the super industry and I agree that more clarity and consistency is needed. I believe the Government is looking into this.
At this stage, with the variety of allocations used by the super industry for the categories ‘balanced’ or ‘growth, I can only report the figures I have access to and then flag that the allocations are spread across a percentage range. I will certainly be revisiting this issue in future articles.
Regards
Trish