During a recent AIST seminar, AustralianSuper’s chief investment officer, Mark Delaney, outlined why members need to understand superannuation is a long-term product and why they should limit engagement.

Noting the importance of education for members, Mr Delaney pointed to the long-run average of the sharemarket, with members’ money likely to face an adverse outcome once every 10 years.

As such, over a member’s working life, they will face five to six of these downturns.

“But each time it comes along, it’s a terrible shock for people,” he said.

“The newspaper runs big stories, heaps of media, everything, and people panic. Those who don’t panic are rewarded and those who do panic are punished.”

Using the example of last year’s COVID-19 pandemic, Mr Delaney explained a member who had $100,000 in February just prior to COVID would’ve seen their money fall to $80,000 during the pandemic.

If they sold to cash, they would only have $90,000, while those who remained fully invested now have $115,000.

“It’s an enormous difference, so people need to just turn off the TV because, if you react to it, you will lose money,” he said.

Instead of trying to outmaneuver the market, Mr Delaney believes members should be engaging with their superannuation to the point of finding the right fund.

“The gap between a good fund and a bad fund is enormous, not just over five years but over 10, 15, 20 years,” he said.

“You need to be engaged around finding the right fund and the right strategy and then you need to let the long run work for you.

“You can’t make it work by trying to make it short-term. It just won’t work. So they certainly don’t need to be engaged beyond those fundamentals of, do they have the right fund and are they in the right strategy.”

Don’t expect your fund to have similar returns to 2021

Not only did Mr Delaney highlight why members need to have the right level of engagement, the superannuation expert warned members against expecting similar returns to the post-COVID-19 uptake.

According to data previously released by Chant West, super funds have delivered their strongest financial year result in 24 years, with the median growth fund (61 to 80 per cent in growth assets) returning a “stunning” 18 per cent for FY21.

This is the second-highest return since the introduction of compulsory superannuation in 1992 — the only better financial year result was 19.4 per cent recorded back in 1996–97.

And while AustralianSuper beat the average, returning 20 per cent to members over the financial year, its CIO admitted that was an anomaly.

“I have been managing money at AustralianSuper since 2000 and we’ve never done 20 per cent,” he said.

“A few years we did 17 per cent prior to the financial crisis.

“The long run, you expect these funds to do inflation plus 4 or 5 per cent and that is where returns are going to mitigate.”

Highlighting last year’s performance, the CIO said it is important for members to look towards the long term.

He concluded: “Now, for everyone that picks up their super statement like I did last year and goes ‘that’s fantastic’, [it’s important to note] that not every day is perfect.

“It doesn’t matter how well you went last year or over three years, you really have to go well over 40 years, and if you do that, it will make an enormous difference.”