This time last year, the coronavirus pandemic was hitting our radar, but few could have predicted what was coming with regard to our superannuation balances.
When the virus took hold in Australia, financial markets were rocked to their very core and super balances looked as if they might take a very long time to recover.
Which makes the fact that funds ended up delivering a positive return for 2020 an amazing feat and testament to their resilience during major upheaval.
According to the latest data from research group Chant West, the median growth fund ended the year up 3.7 per cent. That figure represents the ninth consecutive positive calendar year for super funds, even though the result is a long way shy of the 14.7 per cent increase in 2019.
Senior Chant West investment research manager Mano Mohankumar said the result for 2020 was remarkable.
“If we take ourselves back to late March, the prospect of finishing the year up 3.7 per cent would have been inconceivable,” he said. “Back then the world was in chaos, facing a frightening health crisis that saw most countries introduce some form of lockdown. Whole industries ground to a halt, countless jobs were lost and the global economy was heading rapidly into recession.
“Over February and March, major share markets took a beating and the median growth fund plummeted 12 per cent. Markets rallied from that point, however, and growth funds rode the rally to surge 15.5 per cent over the remaining nine months of the year.”
Mr Mohankumar said the results over the course of 2020 highlighted the importance of patience when it came to investments and superannuation.
“Members who sat tight generally did okay,” he explained. “Sadly, there were many others who panicked when markets fell and switched their investments to cash or a more conservative option.
“Not only would they have crystallised their losses, but they would also have missed out on some or all of the subsequent rebound. And, of course, there were those who withdrew their money from super completely. That’s understandable to deal with temporary hardship, but they’ll now be faced with making up considerable lost ground.”
He said the other key message from the 2020 experience was the importance of diversification. Growth funds had their investments spread across a wide range of asset sectors and that worked to cushion the impact during periods of share market weakness, as seen in February and March.
“At the same time,” he said, “they still have a sizeable allocation to listed shares – about 54 per cent on average – so they’re able to benefit when those markets perform well, as we saw from April to December.
“The better performing funds over the full year were generally those that had a higher allocation to international shares, particularly those with a ‘growth’ style bias.”
The top 10 performing growth funds over the 2020 calendar year
While there was an enormous focus on the results last year, Mr Mohankumar said it was also important to track your super fund’s long-term performance.
“Certainly, look at what your fund delivered in 2020, but it’s far more important to know what its long-term objectives are and whether it’s achieving them,” he said. “Most growth funds aim to beat inflation by 3 per cent to 4 per cent a year.
“We now have data going back 28.5 years to July 1992, the start of compulsory super. Over that period, the annualised return is 8.1 per cent and the annual CPI increase is 2.4 per cent, giving a real return of 5.7 per cent p.a. – well above that 3 per cent to 4 per cent target.
“Even looking at the past 20 years, which now includes three major share market downturns – the ‘tech wreck’ in 2001-2003, the GFC in 2007-2009 and COVID-19 in 2020 – super funds have returned 6.7 per cent p.a., which is still comfortably ahead of the typical return objective.”
How did your super fund perform in 2020? Were you expecting things to recover so quickly after the COVID downturn? Did you take some of your money out of superannuation last year? Do you regret your decision?
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