Superannuation balances have taken a hit after the share market dropped more than 4 per cent today, taking losses to 10 per cent for the year so far.
Executive director of SuperRatings, Kirby Rappell, said Australians can expect to have about half of their super balances affected.
“For the investment style most people are in, there’s about 30 per cent in international shares and about 20 per cent in Australian shares,”
he said.
“So about half of people’s money is invested in equities.”
The market ructions come as the world reacts to tariffs imposed by US President Donald Trump.
Financial analyst Marcus Padley said it was a result no one could have anticipated.
“It’s happened so quickly… you were really on a hiding to nothing, thinking that you could time the market as someone who was watching the footy on the weekend, rather than watching the Chinese tariff situation.”
But he also said there’s no benefit from panic. Let’s look at why.
Why have markets reacted so swiftly?
The tariffs imposed by US President Donald Trump on the rest of the world were long-flagged — but the details were what shocked markets.
Mr Padley said the crash on the stock market, and hence plunge flowing through to superannuation funds, was because those tariffs were “at much higher levels than expected.”
“Fifty-seven countries [are] seeing significantly higher tariffs, that includes China at 34 per cent, and the development over the weekend was that China has retaliated by putting a 34 per cent tariff on all US goods.”
He said the fear is not the number of tariffs or how high they are, but the permanence of them, which could result in a US recession this year.
How have super balances been affected?
Because half of Australia’s super is tied up in equities, SuperRating’s Mr Rappell said people can expect super to be down about half as much as the markets.
“That still might mean it’s down 4 or 5 per cent for the month,” he warned.
After a number of “smooth” years of very strong super returns, Mr Rappell said it’s important people now brace for uncertainty.
“It’s been quite scary to see, but I think everyone’s got to get comfortable with the fact that volatility is well and truly back.”
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Who has been most impacted?
Mr Padley said there are two groups of people who are most vulnerable by this market crash.
“Those that are sitting in a high growth option and those that are in retirement and don’t have a long runway from here to recover it.“
But he noted older Australians who will be accessing their super soon will most likely be sitting “in one of the most conservative options anyway.”
“That will mean that maybe they’ve got a 20 to 40 per cent exposure to equities, and if they have dropped 20 per cent then their super might be down by 4 to 8 per cent.”
He said those who had already chosen the cash asset class — the most conservative option of super investments — are in the best position because it means investing in options that aren’t as volatile.
Mr Padley said, while it may be too late to move to cash now as so much damage has already been done to super balances, it’s important people know that anyone can change to a cash class whenever they want.
“The lesson really is to realise that you did have the option … and if you ever feel that the market’s keeping you awake at night, you can [click cash] and the day later you can click to get back in [to shares],” he said.
“Most people don’t know they’ve got that option.”
Should you be worried about your super?
Mr Padley said naturally a lot of people will be worried right now and looking for answers.
“They’ll be sitting at a dining room table blaming AustralianSuper or blaming Aware Super.
“The truth of the matter is, there is nothing to blame but the markets.“
He said the most important thing industry professionals can be doing right now is to ensure they are keeping their clients calm.
“That’s their job, so [their clients] don’t go and sell everything.”
Mr Rappell said it’s really important for Australians to focus on the long term.
“No knee-jerk reactions are usually the best answer.
“Trying to time into cash and time out of cash is very tricky to do, so focusing on the long term is probably the best thing you can do right now.”
What’s next for stocks and super?
Mr Padley said other regions, including Europe, are now considering retaliatory tariffs against the United States, after China announced its own 34 per cent tariff over the weekend.
He said it’s expected that Europe will announce a 20 per cent tariff later this week, taking “another leg lower” for stocks.
It’s difficult to know how long this plunge will last but the “key ingredient here is recession fear”, Mr Padley noted.
Marcus Padley says superannuation trustees can’t be blamed for balances falling alongside markets. (Supplied)
“Anything that drives [the risk of recession] higher or lower will drive the markets higher or lower.”
In the meantime, he said the best thing to do is “shut your eyes and wait… this will be forgotten.”
This article is not financial advice. If you are concerned about your own financial situation you should seek independent, personal financial advice that takes account of your own individual circumstances.
