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Your super in a market downturn: Why experts say to 'stay the course'

The long-term nature of superannuation means you can ride out the storm.

Last updated: 08 July 2022


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Need to know

  • 2022 has been a rare bad year for the share market, and many will see their super balance go backwards
  • Despite this trend, experts say 'staying the course' is the best thing to do in the long-term
  • Experts warn that moving to a more conservative option could mean you’ll miss the gains when the market picks up

With constant headlines about the tough market conditions, it may be tempting to make changes to your superannuation.

But the consensus from experts is that the best action is simply to stay the course.

In other words, you don't have to do anything – in most cases.

Super Consumers Australia director Xavier O'Halloran says that a market shock may be a good opportunity to make sure that the fundamentals of your super are sound.

'Time in the market beats timing the market'

Given that the share market has taken a dip, you'd be forgiven for thinking it wise to move your investment out of this market for the time being and re-invest when the market picks up.

But the big problem with this strategy is that in the past the share market has rebounded strongly and suddenly. If you're still invested in a conservative option when this happens, you'll miss out on the gains.

'Timing' the market is extremely difficult, even for experienced investors.

"It's difficult enough for investment experts to time the market," says Alex Dunnin, executive director of research with superannuation consultancy Rainmaker Information. 

"If consumers think they could do this better than super funds, well I'd like you to be running my super fund."

Difficult to predict when the market will rebound 

Investment bank J.P. Morgan calculated that if you stayed invested in the S&P 500 (a US stock market index) from the start of 1999 to the end of 2018, you'd have got an annual return of 5.6%. 

But if you were out of the market for the ten best days of those 20 years, your return would be much lower – only 2%. And if you missed the best 20 days, your returns would be negative.

Speaking to Super Consumers Australia after the last market downturn (the onset of COVID-19), 'Barefoot Investor' Scott Pape said the conditions could actually be a positive for those not approaching retirement in the near future. 

Members who remained invested in their long-term strategy through the start of COVID saw their balances rebound to pre-pandemic levels

"Anyone under the age of 40 should be cheering the market going down," Pape said. "The stock market's on sale, and we know the stock market always goes higher."

Damian Graham, chief investment officer at Aware Super, says that many Australians moved their super into lower risk investment options in response to the global financial crisis and COVID. "Yet as markets recovered – and the sense of urgency had subsided – many of the same people were slow to switch back, so they effectively locked in a loss."

On the other hand, says Graham, members who remained invested in their long-term strategy through the start of COVID saw their balances rebound to pre-pandemic levels by the end of the 2020 calendar year.

A rare year for the market

It's also worth noting that the current downturn is an anomaly; the last financial year was only the fifth year of loss in the 30 years of compulsory superannuation. 

Dunnin points out that the 2021–21 financial year was an unusually strong one for super. "Sure this [2021–22] year is quite a reversal …  but let's be blunt, it means over two years we've averaged about 8% p.a. I'll take that."

The long-term performance is more relevant than the short-term performance, however alarming the recent trends may seem

Analysis from superannuation consultants Chant West found the median growth fund returned 7% per annum across the last 20 years despite three major market downturns: the 'tech wreck' of 2002–03, the global financial crisis of 2007–09, and COVID-19.

Because super is a long-term investment, the long-term performance is more relevant than the short-term performance, however alarming the recent trends may seem.

Conservative options aren't a safe haven

Another potential problem is that in the current market other types of investments such as bonds, which had previously been seen as a safer option, aren't thriving either.  

"What makes this market correction harder than most is that conservative investments like bonds are performing just as bad, and in many cases, worse than growth investments like shares," says Dunnin.

"Switching from shares to bonds right now could be like jumping from the frying pan into the fire."

Switching from shares to bonds right now could be like jumping from the frying pan into the fire

Alex Dunnin, superannuation consultancy Rainmaker Information

Generally, members in a 'balanced' superannuation option will have their investments spread across different asset types, typically including Australian and international shares, cash, property and fixed interest assets such as bonds.

For some people, especially those approaching retirement, moving some of their super into a low risk/low return option such as cash may give them some peace of mind that their balance won't go backwards as much. But the downside of these options is that you don't benefit when the market recovers.

Focus on the fundamentals

O'Halloran says it's easy to overlook fees in super, but they have a major impact on your retirement income.

"Fees are one thing you can control," he says. "If you're paying more than one percent of your balance in fees, you need to ask yourself whether you're getting value."

The Productivity Commission has previously calculated that a seemingly minor 0.5 percentage point increase in fees could see a typical full-time worker retire with $100,000 less in their super.

Similarly, being in an underperforming super fund could cost you hundreds of thousands of dollars over the course of your working life. We've previously published a guide on how to use the Australian Taxation Office's super fund comparison tool to see how your fund is doing on performance and fees.

"Instead of trying to time the market, which is extremely difficult, make sure you've taken these easy steps. Focusing on the fundamentals you can control can give you some peace of mind that your super is in good shape for the long term," says O'Halloran.

We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact-checking at CHOICE.

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.

Stock images: Getty, unless otherwise stated.