A decade of strong growth for members
The 2018/19 financial year caps off a decade of positive returns for members.
Those invested in the Balanced Growth option (accumulation) have averaged a 9.0% return for each of those 10 years, after investment fees and taxes. This means that if they had invested $50,000 in 2009 and not made any further contributions, that would have grown to a balance of more than $120,000 today.*
Pension members invested in the Conservative option have averaged a 6.7% return for each of the last 10 years, and 6.5% over 20 years.
This means that if they had invested $100,000 in 2009 and left that money untouched, it would have grown to a balance of over $195,000 in 10 years; over the last 20 years, $100,000 would have increased to more than $360,000 today.*
The year provided positive returns for our members across all investment options. Equip MySuper, our broadly diversified option for accumulation members, added a solid 6.0%. The Conservative option, the default for our pension members, gained 4.8% for the year.
After a weak start, a strong finish
After a jittery start, share markets rebounded during the second half of the year, providing good returns. In Australia, the re-election of the Liberal Morrison government led a surge in the domestic share market, carried by strong gains in the financial sector.
The Reserve Bank of Australia lowered the official cash rate for the first time in three years, cutting rates in June, and then again in July 2019, to a historical low of 1%. Other central banks, in particular the US Federal Reserve, also hinted at future rate cuts.
Against this backdrop, all asset classes contributed to the positive performance of our Diversified options.
Take a look at the returns for the financial year.
Looking forward – the biggest risk is not taking any
We see the current economic backdrop of moderate economic growth and low inflation as supportive for financial markets. Borrowing costs for companies are attractive, and the low cash rates are reducing mortgage costs for homeowners. Unemployment levels remain low, and wages growth has begun to rise in real terms.
Returns in traditionally safer assets, such as bonds and cash, are likely to be quite low and may not keep up with inflation over the mid to long term, which is a risk in and of itself. Holding such assets does reduce the risk of a large negative return, but this comes at the expense of generating low returns in the long term.
For growth oriented assets, higher prices for these assets mean future returns are likely to be lower than they have been over the last five to ten years – members should prepare themselves for more modest outcomes from their investments.
Overall, going forward, we expect lower returns for members in broadly diversified options than what we’ve seen over the last 10 years. In a low inflation world, though, even more modest returns can be a strong positive, helping members outpace rising costs of living.
For a more detailed investment report, visit here, or take a look at the returns for all investment options for the year here. Finally, see what Troy Rieck, Executive Officer, Investments, says about the current state of investment markets and what that means for members here.
*All returns are compounded monthly, net of fees and taxes. Calculations based on Moneysmart’s compound interest calculator, moneysmart.gov.au. Past performance is not an indicator of future performance.