Market falls and recession fears: Time to switch your super to cash?

Switching your super to cash may seem like a smart move, but it could actually leave you worse off in the long term.

Between surging inflation, a recession looming, rising interest rates and stock market falls, you might be a bit concerned about your superannuation balance. After all, most of us have our super invested heavily in the stock market.

Yes, your super balance will likely be lower this year.

The first thing to note is that yes, your super balance will likely fall this year (you might have noticed it has already). You'll see if your super balance has delivered a negative return, and just how much it's dropped, when you receive your annual super statement at the end of June.

Superannuation research firm Chant West predicts the median growth fund (this is where most people have their super invested) will be down around -5% for the financial year. A negative return may seem bad, but for context, it'd only be the fifth year to see a negative return in the past 30.

Should you switch your super to cash?

Aware Super chief investment officer Damian Graham told Finder it's usually much wiser to stay the course with your current super investment strategy rather than switching.

"Many people who switch to more conservative investment options when the market is falling lock in an immediate loss and then fail to switch back to more growth-focused options when conditions improve," said Graham.

"We certainly saw an increase in switching activity when markets fell heavily in March 2020, with thousands of members switching to the cash option. Six months later, two-thirds of them had failed to switch back out, meaning they missed the dramatic market rebound."

AustralianSuper head of investment diversified portfolios Justine O'Connell told Finder diversified super funds are designed to be resilient in the face of volatile markets. She also said that super funds already do adjust their investments in line with market conditions so that members don't need to while keeping a long-term strategy in place.

"Periods of market volatility also create new investment opportunities for long-term investors. AustralianSuper continues to actively look for investment opportunities that may have been mispriced by the market in the short term and to make new investments where we see the opportunity to create long-term value, said O'Connell.

"In response [to the current economic outlook], we have started to shift to a more defensive strategy, as conditions become less supportive of growth asset classes. As the economic cycle progresses and markets react, we will continue to adjust the portfolio to manage risk and take advantage of long-term opportunities."

Tips if you're worried about your super right now.

The number one tip is to stay calm and not make any decisions out of fear or panic.

"In times of market upheaval, many people panic and make defensive switches in their investment options, but as markets recover – and the sense of urgency has subsided – they can be slow to switch back. Don't risk locking in a loss by making a knee-jerk reaction," said Graham.

Try to keep in mind that your super is a long-term investment.

"Looking past market turbulence can be challenging. But history shows that markets increase in value over the long term. A short-term view can have a long-term negative impact on your final retirement balance," said O'Connell.

Lastly, if you're considering making a change to your super but you're not quite sure how to go about it, a financial adviser can help.

"They can help you to make the right investment choices for your personal goals and risk appetite. A financial adviser can also guide you when investment markets are bumpy, providing reassurance," she said.