Understanding if switching investment options is for you

Super for the Long-Term

Taking action to switch to a lower risk option when this happens can be very tempting, but for most of our members remembering that your super investment is for the long-term is also a useful consideration. Whilst past performance is not an indicator of future performance, history shows us that markets typically rebound and when this happens the movement upward can be quick and strong. Staying the course can often result in a better outcome in the long-term compared to switching options.

Time In the Market Beats Timing the Market

Choosing inaction over action may feel uncomfortable in the short-term, but it can deliver long-term benefits. Predicting short-term market moves, either up or down, is notoriously hard. Looking at what has happened in Australian equities helps illustrate the risks of trying to time investment decisions. For example, $50,000 invested in Australian equities (via the ASX 200 Index) for a decade to the end of March this year would have become over $131,000. If that same investment of $50,000 had been out of the share market for just the ten best days of market returns over the same period, the resulting balance is over $47,000 lower!

Imagine a member investing $100,000 in Rest’s Core Strategy at the end of 2019. In the first quarter of 2020 the investment markets became very nervous about the impact that the quickly spreading Covid-19 virus could have. If this member had chosen to switch their Core Strategy super balance and move it to the cash option because of the uncertainty and the fear of falling markets in March 2020, their balance only two years later at the end of March 2022 would be $89,764. If this same investor had stayed the course in the Core Strategy throughout this time their balance would have been $115,863. Switching to the cash option and staying there would have cost this investor over $25,000 in as little as 2 years, as shown in the graph below. 

Regardless of short-term market movements, Rest’s Core Strategy where most members are invested, has delivered a 10-year rolling return of 8.50% per year compared to its investment objective return of 4.97%.

It is of course important for Rest members to be in the investment option that best suits their circumstances and the level of risk that they are comfortable with. Before taking any action, reviewing your personal goals may be helpful.