Compound growth: What is it and how does it grow your super?

To live comfortably in retirement, the Association of Super Funds of Australia says you need to retire with a super balance of at least $545,000 if you're single or $640,000 for couples. This would be a very difficult amount to save if it weren't for compound growth.

Thanks to compound growth the more your super grows, the more it will continue to grow over time.

How compound growth helps your super balance grow

Compound growth is the secret ingredient in your super fund. Without it, you'd retire with a much smaller super balance.

What is compound growth?

Super funds earn investment returns which benefit from compound growth. This means the money you earn on your super investments is then reinvested (rather than being withdrawn). Because the money is reinvested with the rest of your super balance, you then earn returns on your returns.

The power of compound growth

Compound growth is a powerful tool because it creates momentum for more growth (then more and more). The compound growth principle says that the investment's earnings will be reinvested and therefore capable of earning further returns.

Let's take a look at a simple example. If growth was not compounded, a $10,000 investment at 10% p.a. growth over 10 years would result in an end balance of $20,000. Each year your initial $10,000 investment would earn a return of $1,000 – but this return isn't reinvested the following year.

Now let's look at the same example using compound growth instead. After the first year, your return of $1,000 is reinvested and added to your initial investment of $10,000. So for the following year, you'll instead be earning a 10% return on $11,000. After 10 years your investment would be worth $25,937 – an extra $5,937 earned through compounding.

What is the compound annual growth rate?

When reading about compound growth, you might hear the term compound annual growth rate, or CAGR for short. This is a way of calculating how much an investment has returned on average each year over a period of time. Super funds use it to show their past performance returns.

Let's take a look at Australia's largest super fund, AustralianSuper Balanced, as an example. Over the 10 years to June 2022 the fund achieved a return of 9.34% p.a. However, this doesn't mean the fund returned exactly 9.34% each year over the last decade.

Instead, some years it may have returned 16% while other years it only returned 3%. However, when looking at the total return over the 10-year period, it's calculated to be 9.34% per year on average.

It's important to note that this doesn't mean the fund will continue to return 9.34% per year going forward. The CAGR is a historical average return, not a fixed future return.

What impacts the growth of your super investment?

Superannuation growth comes from the money earned on the investments in your portfolio and the reinvestment of that money. Factors that affect this growth boil down to the type of fund your investments are in and the fees you're being charged.

Type of super fund

• Super funds can either return strong growth through risky asset allocations or provide a more conservative and balanced growth. Investment fund types are one of the few factors that influences your super performance. You can read more about the different superannuation investment options available in our guide.

Superannuation fees

• Super fund fees directly impact your super balance. Super fees are costs that the superannuation company charges to manage your account. Even if the fund has strong growth, a slightly higher fee could cost you thousands of dollars in retirement. This is why it's really important to compare super funds and make the switch if you're currently paying too much in fees.

Your contributions

• The more you earn, the higher your contributions from your employer will be which will helps your balance grow. Aside from your employer contributions, it'll also depend on whether or not you make your own additional super contributions.

Finder survey: How many years have Australians been with their current super fund?

How can I get compound growth with my super?

Super growth is built on compound growth, and this means super members don't need to do anything to have compound growth. All super funds are experiencing some form of compound growth.

If you want more growth from your super fund there are a few things you can do:

• Switch to a high growth super investment option
• Reduce your fees
• Increase your voluntary contributions
• Make sure you only have one fund open in your name (if you have multiple, it's easy to consolidate them)

Time to switch super funds?

1 - 16 of 448

Name	Last 1 year performance (p.a.)	Last 3 year performance (p.a.)	Last 5 year performance (p.a.)	Last 10 year performance (p.a.)	Fees on $50k balance (p.a.)
Australian Ethical Super Balanced Green CompanyEthical	Last 1 year performance (p.a.) +7.74%	Last 3 year performance (p.a.) +4.5%	Last 5 year performance (p.a.) +7.03%	Last 10 year performance (p.a.) +6.89%	Fees on $50k balance (p.a.) $603	Go to siteMore Info Compare
CareSuper Growth Industry fundHigher risk	Last 1 year performance (p.a.) +8.9%	Last 3 year performance (p.a.) +7.71%	Last 5 year performance (p.a.) +8.29%	Last 10 year performance (p.a.) +8.39%	Fees on $50k balance (p.a.) $553	Go to siteMore Info Compare
Aware Super High Growth Industry fundHigher risk	Last 1 year performance (p.a.) +10.17%	Last 3 year performance (p.a.) +7.44%	Last 5 year performance (p.a.) +8.85%	Last 10 year performance (p.a.) +8.69%	Fees on $50k balance (p.a.) $497	Go to siteMore Info Compare
UniSuper - Balanced Industry fund	Last 1 year performance (p.a.) +7.48%	Last 3 year performance (p.a.) +5.92%	Last 5 year performance (p.a.) +7.59%	Last 10 year performance (p.a.) +7.95%	Fees on $50k balance (p.a.) $351	Go to siteMore Info Compare
Spirit Super - Balanced (MySuper) Industry fund	Last 1 year performance (p.a.) +7.68%	Last 3 year performance (p.a.) +6.2%	Last 5 year performance (p.a.) +6.65%	Last 10 year performance (p.a.) +7.54%	Fees on $50k balance (p.a.) $452	Go to siteMore Info Compare
CareSuper Balanced Industry fund	Last 1 year performance (p.a.) +7.29%	Last 3 year performance (p.a.) +6.55%	Last 5 year performance (p.a.) +7.15%	Last 10 year performance (p.a.) +7.61%	Fees on $50k balance (p.a.) $553	Go to siteMore Info Compare
Australian Retirement Trust - Growth Industry fundHigher risk	Last 1 year performance (p.a.) +9.88%	Last 3 year performance (p.a.) +10.01%	Last 5 year performance (p.a.) +9.66%	Last 10 year performance (p.a.) +9.21%	Fees on $50k balance (p.a.) $542	Go to siteMore Info Compare
Spaceship - GrowthX Higher risk	Last 1 year performance (p.a.) +22.23%	Last 3 year performance (p.a.) +5.25%	Last 5 year performance (p.a.) +10.87%	Last 10 year performance (p.a.) N/A	Fees on $50k balance (p.a.) $503	Go to siteMore Info Compare
Australian Retirement Trust - International Shares Index (unhedged) Finder AwardIndustry fundIndexed investmentHigher risk	Last 1 year performance (p.a.) +20.99%	Last 3 year performance (p.a.) +11.75%	Last 5 year performance (p.a.) +12.02%	Last 10 year performance (p.a.) +11.42%	Fees on $50k balance (p.a.) $187	Go to siteMore Info Compare
AustralianSuper - Balanced Industry fund	Last 1 year performance (p.a.) +7.58%	Last 3 year performance (p.a.) +6.44%	Last 5 year performance (p.a.) +7.76%	Last 10 year performance (p.a.) +8.18%	Fees on $50k balance (p.a.) $382	Go to siteMore Info Compare
UniSuper - Conservative Balanced Industry fund	Last 1 year performance (p.a.) +4.85%	Last 3 year performance (p.a.) +4.78%	Last 5 year performance (p.a.) +4.92%	Last 10 year performance (p.a.) +5.89%	Fees on $50k balance (p.a.) $366	Go to siteMore Info Compare
AustralianSuper Conservative Balanced Finder AwardIndustry fund	Last 1 year performance (p.a.) +5.79%	Last 3 year performance (p.a.) +4.27%	Last 5 year performance (p.a.) +5.69%	Last 10 year performance (p.a.) +6.4%	Fees on $50k balance (p.a.) $367	Go to siteMore Info Compare
Australian Ethical Super Growth Green CompanyEthicalHigher risk	Last 1 year performance (p.a.) +8.89%	Last 3 year performance (p.a.) +6.09%	Last 5 year performance (p.a.) +7.88%	Last 10 year performance (p.a.) +7.64%	Fees on $50k balance (p.a.) $733	Go to siteMore Info Compare
Australian Retirement Trust - Australian Shares Industry fundHigher risk	Last 1 year performance (p.a.) +7.42%	Last 3 year performance (p.a.) +9.72%	Last 5 year performance (p.a.) +9.6%	Last 10 year performance (p.a.) +8.51%	Fees on $50k balance (p.a.) $347	Go to siteMore Info Compare
Spaceship Global Index Indexed investmentHigher risk	Last 1 year performance (p.a.) +18.66%	Last 3 year performance (p.a.) +10.37%	Last 5 year performance (p.a.) +10.41%	Last 10 year performance (p.a.) N/A		Go to siteMore Info Compare
UniSuper - Growth Industry fundHigher risk	Last 1 year performance (p.a.) +8.46%	Last 3 year performance (p.a.) +6.09%	Last 5 year performance (p.a.) +8.55%	Last 10 year performance (p.a.) +8.64%	Fees on $50k balance (p.a.) $426	Go to siteMore Info Compare

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Unless indicated otherwise, the information in the table is based on data provided by SuperRatings Pty Limited ABN 95 100 192 283, Australian Financial Services Licence 311880.

*Past performance data and fee data is for the period ending Jan 2024