Shares are falling and so are super balances but dont overreact

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YOU must be living under a rock if you haven’t noticed world sharemarkets tumbling this year.

The Australian Stock Markets All ordinaries index alone has fallen more than seven per cent since January 4.

But while were often told to get our heads out of the sand and stop being apathetic about our super, at times like this a useful strategy can be to simply do nothing.

Its true that most super funds have at least 50 per cent exposure to equity markets but, for the past few years markets have been rising strongly so the more equity exposure the better the returns.

Thats why, no matter what stage of life you are at, it is important to remember that super is a long-term investment and any adjustments to super strategies and investments should be taken with that in mind.

To put it in perspective, since the falls of the global financial crisis, super funds have bounced back by more than 80 per cent, says Jeff Bresnahan, chairman of research house SuperRatings.

So all the panicked super investors who fled the markets after they tanked in 2008, dumped their money in cash and never returned have missed out on all of that growth.

For the median balanced super fund in Australia, where up to 70 per cent of us in major funds are invested, returns fell 2.1 per cent in January, SuperRatings found.

Combined with losses last year these funds are down almost 1 per cent this financial year and if markets remain volatile theres a good chance fun performance will be down on average for the year.

But over the past five years the median balanced fund option has grown by, on average, 7.5 per cent a year.

By all means check how your super fund is invested and adjust your long-term strategy if needs be but dont overreact to sharemarket volatility, says Bresnahan.

You are going to lose money once in every six years in a balanced fund option, he says

Paul Schroder, group executive of membership at Australian Super, on of the nations largest funds agrees that panicking and switching out of equities is not the way to go.

In many cases its more risky to switch when markets are volatile, Schroder says.

The thing people can do is try to ensure theyre in a fund that has traditionally performed well and has low fees because that will make the biggest difference over time.