What is your super worth? Are you tempted to check your account balance on a regular basis?

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.

Having said that, not all super funds are the same, and there 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.

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 or 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, unless you 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.

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).

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.

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.

If you need specific advice tailored to your own circumstances, we always recommend you consider seeking advice from a licensed financial planner.

 

Source: Peter Kelly | Centrepoint Alliance