Open that super fund envelope – it should contain great news

Super fund envelope Superannuation Australia 2021
The top eight traditional balanced super funds recorded returns of more than 20% in the past financial year.

Chances are that a rare but pleasant surprise is about to arrive in the mail soon.

Superannuation fund returns are through the roof for the past financial year with the top eight traditional balanced funds all recording more than 20%.

That is a result to note down in the history books and is a massive contrast to the previous financial year, which was marked by a massive slump in the share market and a COVID-19 fuelled recession in Australia.

So, when the envelope or email arrives from your super fund, most people should be seeing a return well into double digits, with SuperRatings’ numbers showing a median return over the year to 30 June of 17.6%.

Returns are way ahead of target

That is way above the usual return targeted by these funds which is usually around beating inflation by at least 3.5% – so, around the 5.5% to 6.5% range.

In other words, the past year alone represents about three to four years of anticipated returns, which begs the question – is this as good as it gets, which is usually followed by the question, is it time to switch to cash?

Super is a long-term to very long-term investment and in another bit of fortunate timing, the last financial year taught anyone who was paying attention about the perils of trying to time markets and using superannuation for short-term trading.

In the depths of the COVID-19 crash for the share market, there was no shortage of worried people screaming that it was the time to switch to cash.

Instead, it was a perfect time to hold the course and keep the asset allocation for Australian and international equities high.

Even if we look at longer term returns – which is the real measure of a fund rather than annual numbers – they are still well above targeted returns in most cases.

The median average compound return for balanced options over the 10 years to 30 June 2021 was an impressive 8.3%.

Over that same time period, some of the best performing funds achieved much better returns with AustralianSuper Balanced and Hostplus Balanced a dead heat, with an average annual compound return of 9.7%.

Cbus Growth and UniSuper Accumulation (1) Balanced both returned 9.6% while CareSuper Balanced and Sunsuper For Life Balanced were next with returns of 9.1%.

COVID-19 withdrawals were really expensive

Indeed, in a terrible coincidence, the 3 million Australians who together withdrew $36.4 billion from their super as part of the government’s COVID-19 early access scheme have missed one of the best years of investment returns imaginable.

An estimated 1 million workers under the age of 35 have either closed their super accounts or have less than $1,000 left.

That really is a terrible result for the many people involved but hopefully the lesson to stay the course and invest for the long term will now be burned into the memory banks of a new generation of investors.

The lesson is that nobody knows for sure what is around the corner – although there is never any shortage of those who claim to know – so the best anyone can do is trust in the long-term investment mantra of having a disciplined asset allocation and be prepared to ride out the inevitable periods of low or negative returns.

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