- 17 March, 2021
How much is my super really worth?
If you are like me, you are vitally interested in what your super is worth. And you may even be tempted to check your account balance on a regular basis, perhaps weekly or even daily.
Depending on whether the balance has gone up or down in value since we last checked will dictate our mood for the day, or until we log on to check our balance again.
Part of our focus is a result of the increasing amount of information that is available in almost real-time.
I remember the days, not that long ago, when super funds sent out member statements once each year. If you wanted to know what your super was worth between statements, you had to call your super fund and have them work out your balance while you listened to hold music.
With improvements in technology, this information is now available 24/7. We can log into our super fund account at any time and find out our account balance at the end of the previous business day. It is all very convenient isn’t it?
Having said that, not all super funds are the same, and therein lies a problem.
For the purpose of this article, we need to distinguish between two main types of super funds; retail super funds, and industry superannuation funds.
Retail superannuation funds are often products offered by large financial institutions including banks, while industry funds are often described as being not-for-profit, or profit-for-members funds.
I will not get into a philosophical discussion on the relative merits, but it is important to make the distinction for the sake of this article.
Retail superannuation funds will generally be “marked to market”.
This means the value of the fund’s assets, and therefore the balance of each member’s account, are valued daily. The balance you see when you log into your account is what you would have received if you withdraw your funds at the end of the previous day. Where a superannuation fund invests in listed assets (shares, property trusts, fixed interest securities and cash) valuing the assets each day is relatively easy.
However, if a superannuation funds invests in a significant portion of assets that are not listed on an active secondary market, like a stock exchange, valuing assets on a daily basis becomes more challenging. In fact, some super funds with significant portfolios of unlisted assets, including direct property, may only value their assets once a year. This helps to smooth out account balance volatility.
When our super is held in a retail superannuation fund, the daily fluctuations in our account balance might appear concerning. After all, the fund is revaluing its billions of dollars of assets every day and a small increase or fall in (say) the US Dow Jones index can have a flow on effect to the Australian stock exchange; this in turn, translates to a positive of negative movement in our account balance.
One of the risks that occurs when our super fund invests in marketable securities like shares, fixed interest, and listed and unlisted property is that we experience this volatility. If our super fund values a significant portion of its assets less regularly, we will not see the same volatility.
However, if your super balance today is (say) $300,000, but a couple of months ago it was $330,000, does this mean you have lost $30,000? No, you only have crystalised your loss if you sell or switch out of a particular asset or asset class.
One of the real risks to our superannuation savings is that we sell assets when the prices fall, rather than riding out the storm.
While some superannuation funds may appear, at least on the surface, to be less volatile than other superannuation funds, it is of absolute importance to ensure you are comparing like with like. If one fund is valuing its investments on a daily basis but another fund is valuing their investments less frequently, the second fund may appear to be less volatile. However, you need to look beyond the headline performance and consider other aspects including what types of investments the funds hold, the fees they charge, how frequently they value their assets, and how the funds perform over a one two, five and ten year period.
Having observed these daily fluctuations in my super account balance for a while now, I’ve concluded that having access to so much real-time information can actually be counter productive.
Perhaps we should resist the temptation to check our account balance every day, or even every week unless we are actively managing our own portfolio (which most people don’t).
There is nothing more demoralising than seeing our superannuation balance fluctuate, particularly downwards.
Imagine if we asked our real estate agent to value our home every day. While we may loosely keep track of real estate prices in our local area, we are generally only concerned about the “real” value when it comes time to selling. After all, we are unlikely to sell our house simply to move to an area that might be experiencing a better current growth rate.
It’s the same thing with superannuation. Try to visualise this story as you read..
Picture a child walking up a hill while playing with a yoyo.
If you focus on the yoyo, it is constantly going up and down. However, if you draw back and focus on the child walking up the hill, you see the child is making progress up the hill, even though the yoyo is constantly going up and down – just like the share market.
Think of your super as the journey up the hill, and not the constant up and down of the yoyo.
However, if at the end of the day, the volatility of your super is causing concern and sleepless nights, perhaps it is time to review your overall investment objectives and consider moving to a more conservative investment mix.
This article is not intended to be providing investment advice. Remember, if you need specific advice tailored to your own circumstances, we always recommend you consider seeking advice from a licensed financial planner.