Super accounts are generally invested in a diversified mix of assets whose prices change daily, impacting the overall value of your account. There may be times when the size of your super goes up or down materially; this is normal.
The value of your super on any day is the number of units in your fund multiplied by the unit market price.
The daily variation in the value of your super, or volatility, is the risk that you take for long-term growth in order to build a super balance that’s large enough to finance your retirement goals. The general rule is that as the potential for a high return increases, the risk of loss also becomes greater.
If you have more than five years until you need your money, you’d generally have the time to ride out the short-term ups and downs of growth assets, such as shares, infrastructure and property.
It’s the compounding of positive returns over time, as you benefit from the growth of earlier income and capital gains that will help drive your super to the level that you need to live comfortably.
This means two very important things to super members:
However, the value of your super will not increase ‘in a straight line’ like a bank account that is paid a constant interest rate. Instead, it changes in line with the value of the underlying assets of the investment options in which your super is invested.
One way of looking at this is to think about the share price of a mining company that changes continuously. This may be because the company faces volatile commodity prices, changing input costs, fluctuations in the availability of workers, regulatory change or evolving customer needs.
The market value of any investment is driven by changes in the expected level of its earnings growth and the yield that investors apply to these earnings. Some of the more significant factors that can drive these price movements include:
Super is generally a long-term investment that may deliver negative returns in some years. This isn’t necessarily a cause for concern if you’re a long-term investor who’s still some years from retirement. Reducing the market risk in your super following falls in share markets may increase the risk that your super balance fails to meet your retirement goals.
It’s a good idea to review your super from time to time to see if you’re still happy with the investment options you’re invested in. If you’re a member and would like to have a chat with an adviser from Mine Super Financial Advice, you can book a free initial consultation. Please click here to get started.
Past performance isn't necessarily an indication of future performance.