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What does the share market rally mean for your super?

Female accountant using laptop while doing paperwork at home

Super funds are clawing their way back towards positive returns, but some are doing better than others.

Following huge and very quick falls in the share market in March, we're now seeing an equally big and fast rebound. The ASX is up an incredible 30% since it crashed in March. While shares still have a fair bit to go to reach their February 2020 levels, the rally over the last two months is certainly good news for anyone worried about their super.

The latest figures from super research agency Chant West reveal growth super funds were up 2.2% in May. This follows the median growth fund being up 3.8% in April. Growth funds are those with 61-80% of the balance invested in growth assets like shares, and it's what most Australians have their super in unless you've chosen to build your own investment mix.

While we've had two positive months, super funds are still slightly down for this financial year. According to Chant West, growth funds are down just 1.1% so far this financial year (1 July 2019 to 31 May 2020). This means there's even a possibility that super funds will end the financial year with a positive return.

Given the ASX dropped by almost 40% in March, a positive return of any kind is a great result. However, Chant West senior investment research manager Mano Mohankumar says we aren't out of the woods just yet.

"Given the ongoing economic damage, health concerns and the absence of a vaccine, we should expect market volatility to continue, and fund members will need to remain patient and focus on the long-term prospects for their super."

"While this financial year's result may still finish in the red, it's important to remember that funds have had an unprecedented run since the GFC, returning an impressive 8.4% per annum since the GFC low point in early 2009. That is well ahead of the typical return objective which translates to about 5.5% per annum over the same period," he said.

Lifecycle products haven't performed as well as MySuper growth funds

MySuper growth funds such as AustralianSuper Balanced and HostPlus Balanced offer one pre-mixed investment portfolio for all members who opt for that investment option, regardless of their age. But some super funds offer lifecycle or lifestage options for their default MySuper option instead, which do change depending on your age.

The idea behind these lifestage investment options is that you'll be invested in less high-risk assets like shares as you get older. Some examples are Sunsuper Lifecycle and QSuper Lifetime.

Chant West's latest figures show that lifecycle investment options are also clawing back towards positive returns, though they're slightly down compared to standard MySuper growth options. According to Chant West the reason the lifecycle funds haven't performed as well is that they're less diversified.

What action should you take with your super right now?

While switching investment options isn't the best idea at the moment, there are some things you can do to boost your super balance. The first (and easiest) is to check if you've got multiple funds and, if you do, consolidate them. This will mean you're not paying multiple sets of fees that will be eating into your returns.

It's also a good time to consider making an extra contribution to your super. If you contribute to your super before the end of financial year on 30 June, you can claim this contribution as a tax deduction (provided you haven't already reached your contribution limit of $25,000 this year). This means the money will be taxed at the lower super rate of 15% compared to your standard tax rate, plus you'll be reducing your overall taxable income. However, this isn't a tax-effective strategy if your income tax rate is less than 15%.

Lastly, compare your super fund with others in the market and consider switching to one with lower fees and better long-term performance.

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