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Recent share market falls will impact superannuation returns this year

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The median growth super fund fell 3% in October according to data by Chant West.

Both the Australian and international share markets took a bit of a hit in October, with Australian shares falling 6.2% in the month. If you've got a portfolio of shares, it's likely you've seen its value drop over the past six weeks, but it's likely not your only asset to be impacted. Australian super funds have also seen their returns fall because of the dips in local and global equities.

According to data released today by independent superannuation research firm Chant West, the median growth super fund fell by 3% in October, with performance figures slipping even further for the first half of November. A growth super fund is one with 61% to 80% of its asset allocation in growth assets, like shares and property. Because of the share market falls in October, the median growth super fund delivered a return of just 2.4% for the first 10 months of the year.

However Chant West senior investment research manager Mano Mohankumar said this isn't actually too bad of a result, and Australian growth super funds have done a good job of cushioning some of the blow for their members by investing in assets outside of just shares and property.

"Despite a disappointing October, growth funds still have a good chance of finishing in positive territory for the seventh consecutive calendar year. However, this year's return is certain to be well below the 10% average of the previous six years. But members need to remember that an average of 10% is not normal. Growth funds are typically constructed to beat inflation by 3.5%, which translates to about 6% per annum over the long term," said Mohankumar.

"The month of October was a great example of the benefits of diversification, and a reminder that growth fund performance isn't driven entirely by listed shares and property. On average, growth funds have about 55% invested in those markets, which leaves a substantial 45% allocated across a wide range of other sectors, including unlisted infrastructure and property as well as traditional defensive sectors like bonds and cash. This helps cushion the blow when there are sharp market falls. So, while Australian shares and hedged international shares were down 6.2% and 6.8%, respectively, the median growth fund was down less than half that at 3%."

Mohankumar said that while these dips in the market are nerve-racking, it's important to remember that superannuation is a long-term strategy. The most important thing Australians can do now is make sure they're in a super fund with low fees and an investment strategy that suits their rick tolerance and age.

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