Don't fret about your super going backwards. Yet. As if the sharemarket's slow-motion collapse weren't enough, while you weren't looking - it's not your fault, I hasten to add, what with one thing and another - your super fund has been experimenting.

Just like that movie Honey, I Shrunk The Kids where the mad professor inadvertently, well, shrank the kids with his new invention.

So while the average super fund, with a so-called balanced portfolio of 60 to 70percent shares and a ragbag of other stuff, shrank by 6.4percent (figures from SuperRatings show) it was also venturing into areas where it is next to impossible to tell whether values haven risen or fallen.

But considering where the money has gone and the nature of the credit crisis, the chances are these assets have also dropped. In which case the returns, for want of a better word, will turn out to be an even bigger loss. It's just that you won't be told and by the time you find out the sharemarket will probably be on the mend so you won't notice.

The only consolation is that if you had invested in a more aggressive fund, the losses would be running at 12percent (for mainly Australian shares) or as high as 17percent (for mainly international shares). And that's just the average. The worst performers would be running up a loss of 20 or even 30percent.

Even some of the supposedly low-risk balanced funds posted "negative returns well into double digits" as Jeff Bresnahan, managing director of SuperRatings, discreetly put it. In fact the worst return was from an employer fund of minus 16percent.

Still, it's worth bearing in mind that almost all the losses happened in one month, the last of the financial year. You can take this in two ways. Either it means the worst has just begun or it shows just how arbitrarily returns are measured. I'll leave it to you.

At the same time you might ponder how a little bit can go a long way.

"The gap between the best and the worst balanced option over a 10-year period now stands at 5.56percent per annum. Had two people invested the same amount in balanced options of these two funds 10 years ago, the difference in their current benefit would be approximately 68percent," Bresnahan says.

How we got there

So what have the funds been up to? Many of them have moved into alternative assets, which include unlisted property trusts, private equity infrastructure and hedge funds. Often this has been at the expense of Australian shares, so it's not as if they've moved from a winner to a loser.

No, the problem is that it's hard to value these assets which, come to think of it, could well be part of their appeal.

And with the market in the doldrums there are so few sales taking place that it is impossible for valuers to estimate what a property is really worth.

Even so, if the behaviour of listed property and infrastructure trusts is any guide, then these untraded asset values must be falling as well.

Sure, the market can exaggerate. But I doubt if a 30percent slump was really meant to be a 5percent rise.

"You'd have to think that, in the current financial environment, there is likely to be some writing down of asset values," says Warren Chant, principal of super specialists Chant West.

Incidentally, there's no such thing anymore as a "defensive" asset, one that would more or less hold its value when the sharemarket went into freefall. Property trusts? Not likely. Bank shares? You have to be kidding.

Even fixed interest has changed. This category is no longer just government bonds and top-line debentures - it can run the gamut of hybrids which are really de facto shares, emerging market debt and, shudder, mortgage-backed securities, the cause of the credit crisis.

Since the credit crisis took the markets completely by surprise - even the banks which should know about these things have either been caught short or have been less than candid, though neither explanation is reassuring - don't blame your super fund for a bad performance.

Fortunately, many had been building up their cash reserves anyway because the market seemed toppy, so they've escaped the worst of the carnage and are in the box seat to buy at bargain prices.

They also did you a favour by plonking you in the balanced fund if you hadn't mentioned a preference when you signed up, or have been tossing out the junk mail about options.

The collapse in share prices has been global which, incidentally, belies the claim made by fund managers that your portfolio needs a lot of foreign stocks so you're more diversified and have a better choice of industries since, for example, a pharmaceuticals or aeronautical stock sure is hard to find in Australia.

In fact the Australian sharemarket, over time, has done better than Wall Street.

Anyway, share prices have slumped as the credit crisis has started to erode economic growth. At the same time, and probably for a related reason considering the speculation by hedge funds, the oil price has soared, raising the spectre of inflation.

All up there's a crisis of confidence in the money market, a slump in US housing and fears it could create a recession, a slowdown in Europe and Japan due to high oil prices, and high interest rates in Australia.

Is it any wonder the markets are shaky and your super is going backwards?

What happens next?

With all that going on, you'd be forgiven for wishing your super was parked in a decent-paying term deposit and be done with it.

You have a point. Community First Credit Union is paying 8.5percent on $50,000 or more, throwing in a bonus $200 fuel card voucher making it really 8.9percent so long as you drive a car.

That's better than your super fund is likely to do over the next year. In fact the long-term annual return from the sharemarket is about that, at least this is without a skerrick of the risk.

"A sustainable return for diversified assets is 8 to 10percent," says Shane Oliver, chief economist and head of investment strategy at AMP Capital Investors.

But not so fast. The 8.9percent is only for 12 months by which time economists expect interest rates to be falling. That'll leave you out on a limb for a start.

Worse, once rates start falling, or even earlier as speculation starts, the sharemarket will take off. And the best part of a bull market is always the first few weeks, which you would miss.

True, it's hard to imagine another bull market from where we are. But as well as lower rates and the windfall of the commodities boom, oil prices are coming down and there are already tentative signs that the US housing slump has bottomed out. Also, corporate profits - apart from the banks - are holding up well.

"The market can turn around quickly," says Tim Gunning, general manager of Commonwealth Financial Planning.

In fact brokers report that turnover is unusually light, suggesting a bear market hasn't become entrenched.

"These things last for 12 to maybe 18 months. They don't persist," says Gunning. "Over time a balanced portfolio always outperforms cash. This has been tested many times."

Or as Oliver points out, sitting in cash until the sharemarket bounces up "is really waiting for things to get more expensive."

It's a fallacy to think that all a super fund has to do is pick the right stocks or, more to the point, avoid the wrong ones and it's set.

The way it slices its portfolio between assets has a far bigger impact on its returns.

"There is a solid amount of academic research that the asset allocation decision is responsible for about 80percent of a portfolio's return," says Robin Bowerman, head of retail at index fund manager Vanguard Investments Australia.

So picking the right stocks accounts at best for only about one-fifth of a portfolio's potential.

Twitch, don't switch

That's why the experts say you should resist the temptation to switch funds.

To begin with, no two balanced funds are the same: the one that has slightly more in shares and less in bonds, for example, will always do better in a good year and worse in a bad year than one the other way around.

After turning a paper into a real loss, and probably paying an exit fee, you'd finish up worse off by switching.

Even within the same fund, switching can be self-defeating, as an experiment by Oliver, covering 80 years, shows.

He calculated the returns if, every time there was a negative year, you switched out of a balanced fund into cash, then went back after it had posted a positive return again.

A $100 investment in 1928 would have grown to $130,115 by June 2008.

But sticking to the balanced fund through thick and thin would have generated $336,984.

Backing the latest winner isn't, well, a sure-fire winner either.

"The worst thing to do is pick the best-performing managers because they will be at a peak. It would be better to pick the worst," says Brian Parker, investment strategist at MLC.

Unless your fund is a complete dud - if you're worried, check the table for average returns over the past 10 years but, even then, give it credit for any better-than-average performances - the only grounds for switching would be excessive fees.

Your fund should be charging no more than 1.25percent a year, says the Minister for Superannuation and Corporate Law, Nick Sherry.

What can you do?

Fortunately you don't have to do anything to claw your money back - the markets will do that for you. Eventually.

But if you're close to retirement or, worse, living on an allocated pension where you have to draw down at least 4percent no matter what the market is doing, you don't need me to tell you there's a problem - not that that is going to stop me.

The good news is that you might be able to get a part-pension with all its bells and whistles thanks to changes made last year.

If all your assets plus super but excluding your home are less than $856,500 you qualify.

"While this may be very small, it does attract a number of other benefits such as health-care support, reduced council, water and electricity rates and reduced travel costs," says Michael Hutton, wealth management partner at HLB Mann Judd.

He also suggests those close to retirement, or semi-retired, should step up their super contributions and "buy into markets at a low point" rather than wait to contribute at the end of the financial year.

If you're over 60 and haven't drawn on your super, turn on a pension.

"There are tax advantages in taking a tax-free pension and sacrificing more of your salary into superannuation," says Hutton.

Certainly your super will get more bang from your buck now that the markets are on their knees.

Even if it has just backfired.

Financial planners say you should hold two to three years worth of pension in cash if you're drawing down from your own fund - just in case.

The fund for you

GROWTH

More than 75percent invested in shares, either in Australia, overseas or both. The rest is usually alternative assets or property with a smattering of fixed interest such as bonds.

Best for Anybody under 40; risk-takers with long-term horizons.

BALANCED

The most popular option, probably because it's the one you're put in if you don't nominate a choice. From 60 to 70percent shares, local and global. Usually about 20percent fixed interest and cash. Some property.

Best for Those in their 50s; nervous about the sharemarket.

CONSERVATIVE

Between 20 and 40percent in shares. The rest is property and fixed interest such as bonds and cash.

Best for Retirees; those who want to sleep at night and have a five years or less horizon.

CAPITAL STABLE

Between 60 and 70percent in fixed interest such as bonds and cash. Limited amount of shares and property.

Best for Those happy to have lower returns to minimise the chances of a negative year.

CAPITAL GUARANTEED

No shares or property. Invests in term deposits or annuities. Can't go backwards but may struggle to keep up with inflation.

Best for Older retirees who want their super to be ultra-safe. Also suitable as a cash fund for those drawing down a pension.

Tips for retirees

* Don't panic. Use any cash savings rather than sell shares at a loss.

* Catching the next market rebound will be critical.

* If you have to sell, do it gradually rather than in one hit to minimise the risk of picking the wrong time.

* You may now be eligible for a part pension.

* Switch out of a growth portfolio to a more conservative one when the market rises again.

BALANCED BENCHMARK
1998-99         8.2%
1999-00                 11.2%
2000-01          5.6%
2001-02                 -3.1%
2002-03         0.1%
2003-04         13.2%
2004-05         13.1%
2005-06         14.5%
2006-07                 15.7%
2007-08                 -6.4%
Source: SuperRatings