If your super has fallen, what should you do?

Your super balance changes every day, fluctuating with the value of investment markets as investors buy and sell: it’s the normal way markets function.

Today we’re more aware of these changing values now we can log in to our superannuation accounts and see the balance daily. And it can be concerning to see that balance fluctuate by sometimes considerable amounts.

From January 5, the Australian sharemarket began to pullback: 21 days later shares fell to their lowest value in seven months. It represented investor reaction to talk of rising interest rates, new COVID variants and the threat of war in Europe. (By early April that lost value was regained).

We’ve been here before. One example is in early 2018 when investors reacted to the threat of rising rates: from a market high in January of that year, Australian shares lost $90 billion in value in early February.

But it took only three weeks for shares to regain that value as the below graph shows.

Source: FactSet

That brings us to the first and most important point in how we think about the falling value of our investments: don’t react emotionally or swiftly.

Because investors (and if you own superannuation you are an investor) that do will often decide to switch to a defensive option after they’ve lost value, limiting gains from any following market upswing, as we saw in early 2018 or the more recent rebound in 2020 following the COVID-induced sell off in March 2020.

A calm, considered approach is always best when deciding what investment is right for you. And it should always involve research, especially when figuring out if the sharemarket is set for a period of decline or growth. That can often be difficult to determine and professional advice can be helpful.

It’s just as important to focus on the long-term. Superannuation grows over many years to become the sizeable savings we need to fund our life after work.

smartMonday’s MySuper product is a good example to explain this. It is designed to change investments as account-holders age to manage risk and provide the potential for growth.

Members aged 35 and under are 90% invested in growth assets, where risk and potential gain are higher, to make the most of any growth while members are in the early stages of their working life and have time to recover from potential losses.

This changes annually, up to smartMonday’s MySuper age 75 and over option, where investments are largely defensive (only 35% in growth assets) to protect what members have gained, as they don’t have time on their side to recover from serious losses.

Markets will go up and down many times throughout your lifelong superannuation journey, this should be expected and cannot be controlled.

Some downturns, as we saw at the beginning of the coronavirus pandemic in early 2020, can be severe. It took most of that year for those losses to be regained.

Last year, growth in shares’ value was strong, with the S&P/ASX 200 index increasing more than 17 per cent from January to December.

But the central lesson is clear, markets do trend up over the long term. So set an investment option that manages risk at the right level for you and be thoughtful when you consider changing, because short-term ups and downs are not always something to worry about.