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Super savers are probably in for another lacklustre financial year, with the median-performing “balanced” investment option returning 0.6 per cent over the past 12 months to March 31, largely due to struggling share markets in the face of rising interest rates.
With less than three months until the end of the financial year, the typical balanced investment option – where most of those still working have their retirement savings – could finish the financial year near where it started.
If the current financial year produces a negative return, it will only be the sixth negative financial year since the introduction of compulsory super.Credit: Peter Braig
That would be hot on the tail of a negative return of just over 3 per cent for the last financial year. SuperRatings figures show it is very rare for there to be two back-to-back negative financial years.
The only time it has happened since the introduction of compulsory super in the early 1990s was between 2007 and 2009, during the global financial crisis.
If the current financial year produces a negative return, it will be only the sixth negative financial year since the introduction of compulsory super.
Balanced options’ single largest asset allocation is to Australian and global shares. Share prices usually struggle to trade higher during periods of rising interest rates and rising prices.
The Reserve Bank of Australia has increased the cash rate 10 times since May last year. While our central bank left the cash rate unchanged in April, and inflation shows early signs of moderating, the pause could be temporary.
The RBA’s minutes from its meeting in early April says recent prices data has remained consistent with the central bank’s assessment that headline inflation peaked at the end of 2022.
In deciding to pause in April, the RBA considered that interest rates had been increased significantly in a short period and the full effects on the economy were yet to be observed, given the lags in the transmission of higher rates.
The RBA says in its minutes that the cash rate could be set higher at future meetings and that the purpose of pausing in April was to allow time to gather more information.
It is a tough financial year so far for super funds, but returns over the longer-term show resilience, says SuperRatings’ Kirby Rappell.Credit: Arsineh Houspian
Whether our central bank will continue to keep rates on hold at its meeting on May 2 will be strongly influenced by the March quarter CPI data, which will be released by Australian Bureau of Statistics on April 26.
The RBA also notes there will be additional monthly readings on the labour market, household spending and business conditions before the May meeting, as well as further information on developments in the global economy and financial markets.
An increase in rates at the May or June meeting would probably see many super funds finish the financial year in low single digits or tip into the red if sharemarket reacts poorly to continued rate hikes here and around the world.
Kirby Rappell, executive director of SuperRatings, says while there has been significant ups and downs over each month in the financial year so far, super funds have mostly performed well over the long term, which is what matters.
Rappell says over the past 10 years to March 31 this year, the typical balanced investment option has produced an average annual compound return of 7.4 per cent.
#The story has been corrected to say that the median balanced option returned 0.6 per cent for the 12 months to March 31.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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