Cash option proves costly for super changers

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Pension fund members who panicked during the pandemic-induced stock market crash and switched to their fund’s more conservative investment options will likely be poorer in retirement.

Fund call centers were inundated with requests to change members during the early 2020 meltdown, when the benchmark S&P/ASX 200 index fell more than 35% in just 22 trading days.

Hostplus Deputy Chief Investment Officer Con Michalakis says trying to time the market by changing is simply too difficult.Credit:

Of the more than half a million people who have switched to the “cash” option of their fund or to a “defensive diversified option”, up to 125,000 members have not yet switched back to the option that they had before.

Mano Mohankumar, senior investment manager at fund researcher Chant West, says someone who was in a “balanced” investment fund option at the start of 2020 and switched to “cash” on March 31 this year – after the worst of the equity market falls – would have seen a cumulative return of minus 9.7% at the end of March this year.

However, someone who stayed the course with a balanced investment option – where most people who are still working have their retirement savings – would have enjoyed a cumulative return of 15.1% over the same period.

A fund member who stayed with a balanced option throughout, which Chant West calls a “growth” option, would have had a super fund balance nearly 25 percentage points higher than someone who stayed. in the cash option.

Super funds offer a range of diversified investment options, from which members can choose, which hold various asset classes in different proportions. The funds also offer options on a single asset class, such as Australian equities.

Balanced options are diversified to optimize returns and risk for the majority of fund members.

A typical balanced option holds around 55% of its total fund pool in Australian and global equities. When the markets crashed in early 2020, these options immediately lost performance.

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