Is it time to rebalance how your super is invested?


Rebalancing is a clever strategy to keep your superannuation fund investments on an even course.

It steers the asset allocation back to your preferred ratio of shares, property and bonds after the ratio shifts in the zigzagging market.

If you don't rebalance and you let your asset allocation drift, you can miss out when the market springs back.

is it time to rebalance your super

Most superannuation fund members have a mix of investments. For example, it could be 70% in growth assets such as property, local and overseas shares plus 30% in defensive assets such as bonds and cash. In bear markets when shares tumble, the ratio of shares falls, and your superannuation investments have fewer growth assets.

Most superannuation fund members don't have to do their own rebalancing when their investments are out of whack. Unless they have deliberately chosen otherwise, superannuation fund members are typically in the default balanced fund. This means that your superannuation fund is doing the heavy lifting and rebalancing for you.

A balanced, diversified superannuation fund option is invested across major asset classes including domestic and international equites, property, infrastructure, bonds and alternative investments such as private equity. Each option has a stated range of percentage weight, and the fund discloses how much is in each asset class. Referred to as 'asset allocation' and sometimes 'strategic asset allocation', it is designed to handle heavy weather by not having all the fund's money in one or two assets.

You might think because this asset allocation rarely changes that your fund is doing very little. In fact, it works hard to keep this allocation stable.

When the equity market goes down, the ratio of shares drops. So, your fund rebalances and buys equities to reset the equity weighting to its target and have more exposure to growth assets. This discipline is known as constant-mix rebalancing.

When the market eventually stops going down your money will be well positioned to bounce back. Over time, buying in market troughs and selling at market peaks to maintain asset allocation does better than simply allowing asset allocation to drift with market movements.

If you have your own self-managed superannuation fund or have opted for your superannuation fund's individual asset classes so that you can build your own portfolio, you will have to rebalance your investments if you want to stick to your asset allocation plan.

You face the dilemma of what to do about asset allocation when market movements reshape it. But timing takes courage and discipline. When are you supposed to cut your losses and let your profits rise?

It can be psychologically hard, trying to time the market. You are selling shares when the prices are going up and you are enjoying the price rises. There is a lot of regret if the shareprices continue to rise and wishing that you had held on and giving yourself a hard time for selling too soon.

On the flipside, when shares are falling, you are supposed to buy. But it can be nerve-wracking in a bear market. One way is to follow the approach of 'constant-mix rebalancing' that is carried out by bigger superannuation funds.

Research from index and exchange traded fund manager, Vanguard, found that more frequent rebalancing will ensure tighter tracking to your target asset allocation.

But this potentially comes at the cost of lower returns, increased turnover, and a heavier tax burden in the current period. It says that rebalancing should not occur on a daily or weekly basis.

For many superannuation fund members, it is best to leave the rebalancing to the experts.

Get stories like this in our newsletters.

Related Stories


Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.