Don’t panic! What superannuation is teaching the post-GFC world

Ten years since the collapse of US investment bank Lehman Brothers, Australia’s superannuation funds have accumulated over $1 trillion in retirement savings, providing a windfall for members prepared to take a long-term view.

According to data from leading superannuation research house SuperRatings, members with a balance of $100,000 at the end of August 2008, just days before the Global Financial Crisis (GFC) hit, would today have a nest egg worth $193,887 if they remained in a balanced option. In contrast, members who panicked and shifted their savings to a capital stable option would have a far smaller balance of $164,277 (see chart below).

 

 

Investors who had stuck it out with their growth option would have fared even better, with $100,000 growing to $201,209 over the decade. The results show the importance of taking a long-term view, even in the face of severe crises such as the GFC.

“The failure of Lehman Brothers ushered in a period of intense crisis for the global financial markets, including in Australia,” said SuperRatings Executive Director Kirby Rappell. “We hoped then that the market crash would prove cyclical and that we would see a relatively quick recovery, but of course that did not happen.”

“But even in the face of the Great Recession, Australia’s superannuation funds have shown us that taking a long-term view and sticking with your investment strategy pays off. Super funds held their nerve and refrained from making rash decisions, and members continue to reap the benefits. After 10 years the GFC looks more like a speed hump.”

 

 

According to SuperRatings’ data, the median balanced option grew at an estimated 1.0% in August, while the median growth option delivered 1.3%. Over ten years, results remain diminished by the GFC, with the median balanced option returning only 6.6% p.a. However, over the past seven years the median balanced option has returned a very healthy 9.3% p.a., with super funds riding the global share market rally which began in 2009.

“The lesson of the GFC is useful to bear in mind when confronting the risks and uncertainties in today’s market,” said Mr Rappell. “There are some significant risks, including the threat of tariffs on global trade and investment, central bank tightening, and the currency and bond crisis that has engulfed emerging markets. Funds need to maintain discipline and stick to their long-term return objectives in the interest of their members.”

 

 

Australia’s top super funds take a long-term view

While the GFC continues to cast a shadow over long-term returns, Australia’s top performing funds have nevertheless delivered some impressive results. A comparison of balanced option returns shows that CareSuper remains ahead of the pack with an annual return of 7.6% over the past decade, followed closely by Equip MyFuture and HOSTPLUS.

 

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