As a result of the slump in investment markets last year, most superannuation funds have had another financial year of negative returns, making it two in a row. This note looks at the key issues for investors.

The key points are as follows:

– While very disconcerting, periodic negative returns from growth assets such as shares and property are normal and are the price we pay for the higher long-term returns they provide compared to cash and government bonds. Reacting to the current turmoil by moving to cash will lock in losses and only lead to lower long-term returns.

– Fortunately, there are signs of improvement. In the June quarter just passed, most balanced growth superannuation funds had their first positive quarterly return since the September quarter of 2007. Share and credit markets led on the way down and they are now leading on the way up as the global financial crisis is abating and leading economic indicators are pointing to an economic recovery ahead. This should help underpin a further recovery in superannuation fund returns going forward.

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