What to expect from this year’s investment earnings

During the 2007-08 financial year there has been considerable volatility (rises and falls) in investment markets and it is possible, depending on your particular investment strategy, that your account balance at 1 July 2008 may be less than you anticipate.

Investment market volatility and investment earnings from superannuation funds are often closely related as a large portion of many super fund assets are invested in both Australian and international investment markets including shares and fixed interest.

Investment returns to superannuation funds have been directly affected by the downturn in global share markets and the US credit crisis. Share markets and fixed interest markets continue to be volatile and it has become quite common to see a good rise in markets one day followed almost immediately by an equal or greater decline the very next day.

This volatility is caused by the uncertainty surrounding the release of good or bad news, the actions of central banks in raising or lowering interest rates, and dramatic movements in commodity prices such as oil and gold. Virtually all investment markets are lacking any real direction and this is making it very difficult for investors to have confidence in their decision-making.

It is important to remember that because superannuation is generally a long term investment, care should be taken before switching investment strategies on the basis of short term market fluctuations. Members considering making a switch of investment strategy/ies should consider seeing a financial adviser.

What is the Trustee doing?

The Trustee has taken steps to reduce First State Super’s exposure to the current volatility in the share markets but investment returns are still likely to be lower than those in recent years as it is very difficult to generate positive performance numbers when market confidence is so low.

First State Super has been reasonably defensively placed, and the strategic asset allocation has been slightly varied, and then re-installed, to offset some of the worst of the share market decline. A careful watch over markets has been maintained to try to lessen, as much as possible, the impact of any market weakness, while still being positioned to benefit from any market rallies that may occur when confidence returns.

The Fund’s pre-mixed investment strategies hold a broadly diversified portfolio designed to protect against any single security which is experiencing difficulty.

Why superannuation is a good investment

Superannuation still remains part of a good investment portfolio – even in periods of low to negative returns.

• Regular savings can even out the highs and lows of investment markets because you buy units at both high and low prices in the periods with the effect being over the longer term a more averaged or smoothed buying price.
• Tax concessions apply to superannuation savings. Investment earnings in a superannuation fund are taxed at 15% (or are tax free in an income stream account). Benefits paid after age 60 are tax free and concessional taxes generally apply to payments for those under age 60. There is also the possibility of salary sacrificing your pay into super.
• If you make contributions to super you may be eligible for Government benefits like the co-contribution and the spouse contributions tax offset (PDF 333kb).
• Superannuation can provide you with good returns on your investment. See First State Super's investment performance and see how this performance compares.