Guard Your Savings

THE BIG QUESTIONS FOR 2018

- Kirby Rappell

WHAT CAN AUSSIES EXPECT FROM THEIR SUPER FUNDS NEXT YEAR IN TERMS OF VOLATILITY AND RETURNS?

Over the year to June 30, 2017 strong returns boosted the balances of many super annuation accounts. However, a more challenging investment environment characterised by subdued returns and increased volatility is expected to impact super returns over the next year.

The average balanced fund (funds with an allocation to growth assets ranging from 60% to 76%) achieved a return of 10.4% in 2017. The trend towards overseas shares was a key contributor to returns due to buoyant international equity markets. The top performers also tended to have higher exposures to unlisted assets such as direct property and infrastructure. The top-performing balanced fund for 2017 was Hostplus Balanced, delivering 13.2%.

Over the next 12 months the main factors that will shape the performance and volatility of investment markets are global and domestic economic conditions and political uncertainty. The current low-interest-rate environment is not sustainable, with further yet gradual increases in the US Federal Reserve’s interest rate on the horizon. Improved economic growth and employment levels paint a positive outlook for Australia, with interest rate hikes expected once the Australian dollar stabilises.

Rising interest rates tend to have a dampening effect on stock prices, and therefore superannuation returns, as the costs of borrowing hit the bottom line of businesses and discretionary spending by consumers. Asset values that have risen on the back of cheap credit also pose a risk to both domestic and international markets if a pricing correction occurs.