Super fund members told to focus on the long game amid fears over inflated share markets

Growth-focused superannuation funds are set to post returns averaging about 14 per cent for 2024 thanks to a bumper year for share markets in Australia and overseas.

Despite some volatility in equities markets in December, the growth-focused funds are poised to beat their bumper 11 per cent return of 2023 and be a similar way in front of their so-called balanced counterparts for 2024.

SuperRatings tipped on New Year’s Eve that balanced funds would enjoy an average return of 11.5 per cent for 2024, after estimated growth of about 0.4 per cent in December.

SuperRatings research chief Kirby Rappell said the best returns would be enjoyed by funds with high exposures to shares given the strength of markets in 2024.

While no December figures were released for growth funds, SuperRating figures show they returned an average 14 per cent in the 11 months to November 30. Their returns tend to show similar upwards and downwards patterns to balanced funds.

Growth funds put between 77 and 90 per cent of member assets into higher risk investments, notably shares and various smatterings of property, private equity and higher-risk debt and infrastructure.

SuperRatings defines a balanced funds as those putting between 60 and 76 per cent of member retirement savings into these riskier investments that, hopefully, generate profits most years.

That risk has been rewarded over the past decade, with the only average negative returns for balanced funds coming in 2022 — and this was after double-figure returns in the pandemic rally of 2021..

SuperRating figures indicate that $100,000 invested in the average balanced fund at the start of 2015 has likely grown to around $195,000 by the end of 2024 — an annual return just short of 7 per cent.

And $100,000 invested at the same time in a growth-focused investment option could well have grown to almost $212,000, thanks to a compound return of about 7.8 per cent.

In the same period, $100,000 invested in a so-called stable fund with 40 per cent or less assets in shares could have grown to more than $148,000, with annual returns averaging 4 per cent.

The current reward for risk comparisons are very different to 10 years ago, when growth-focused investors were still recovering from losses in the global financial crisis and the market horrors of 2008 and early 2009.

SuperRatings figures show growth funds averaged 6.3 per cent returns in the decade to December 31, 2014, whereas balanced funds enjoyed annual returns averaging 6.5 per cent.

Far from being the poor relation, capital stable funds recorded an average 10-year return of 5.6 per cent and a relatively strong seven-year return of 4.8 per cent to December 31, 2014.

Growth funds recorded a seven-year return averaging 3.8 per cent.

While pointing to current risks with shares trading around record highs, Mr Rappell said the focus for most members should remain on the long-term.

With funds taking a long-term focus to meet their objectives over the market cycle, investors needed to “understand their ability and willingness to take risk”.

“Funds have consistently demonstrated their ability to swiftly recover from downturns and members with many years until retirement can afford to block out short term noise in returns,” he said.