What is my super invested in?
A staple for financial planning is the long term investment asset of superannuation. For most people, when the topic shifts to their superannuation at the neighbourhood BBQ they mostly reply with “my super is with… and I don’t know how much is in it” or “who is my super again?, I think I have about 3 different ones”. Great start but this act of neglect can prove hazardous to what is mostly likely going to become your largest investment asset over the course of your life.
Superannuation is a complex beast with rules and regulations that even the strongest willed individual collapse at the knees in terror trying to understand. Knee trembling fear aside, it’s important to understand your superannuation provider and where your funds are invested. For most people, often starting with a new employer, you will supply the initial tax file declaration, and your choice of super fund, to which most people let the employer choose. Having the employer choose your superannuation may not always be as advantageous as you would think. Employers must contribute to your superannuation but they aren’t there to ensure your funds are invested to the best of its ability and the end game of this means that your funds will most often get invested into the superannuation providers default fund.
Default funds are not necessarily a bad thing but default means default and default for the most part is the safe haven for the superannuation provider to aim at achieving you the average investment return measured against all other industry or employer funds. The average returns generated from these default funds isn’t the outcome you should be seeking to achieve, especially if you are quite young and have decades of prosperous employment left.
Am I in a default fund?
A good place to understand your investment options is to dust off your miners hard hat, grab some rope, venture into your filling system and dig out your superannuation statement or statements. Have a nice Sunday afternoon read and see what’s what. All statements will show who they are, how much you have, what your funds are invested in and what fees they are charging and what returns you have made in the past 6-12 months. The default funds are usually referenced with “balanced option”, “core option”, and the dead giveaway is the “mysuper option”. To take away the fun of this game some literally say “default”.
If you don’t have a statement but are aware of whom your provider is with. Pick up the phone and start dialing, like the superannuation genius I’ve made you. A few details about yourself, be prepared you will have to remember your birthday, and they can provide you with your member number, your balance, and where your funds are invested.
O.M.G I think I have one.
So your holding the Tim Tam in one hand and in the other hand your statement reads “mysuper option” and a moment of disbelieve sends a momentary pause to your heart. Its ok, breath deep, calm Blue Ocean. Perform an internet search of your providers and on their website they provide details of each investment option they can provide you with. Each investment option will have its own fees and asset allocation mix (ie, cash, fixed interest, infrastructure, property etc), all of which affect the long term performance and the returns you receive on your funds invested.
Have a look at the different options they have available to invest your funds, industry or employer funds have around 10 or so options. Have a look at the returns each one gives. And not just the short term 6 month or 12 month returns. Look at the long term returns, 3 years, 5 years and 10 years.
Why am I looking at my super again?
So here is the kicker, let’s use some assumptions and speak in hypothetical terms. Let’s assume your default fund returns about 6.5% over 10 years. Yep, that sounds default safe. And have a look around for their growth or aggressive option, maybe it says 7.5% over 10 years. Hmm, not much of a difference…I read your blog article for THIS!!!? Calm down, blue ocean again. Well if you are not going to retire soon than 1% difference, compounded, emphasis on compounded, over 10 or more years can mean a huge difference in the balance of your superannuation funds.
Have a look at the asset allocation mix, hopefully the provider shows you a wonderful pie chart with happy rainbow colours. How much of your account is held in cash or fixed interest? If there is more than 50% in cash or fixed interest combined then you may have a bigger problem. As this means your funds are in defensive assets and are considered low risk. Low risk means low returns. Low returns means less money for you.
So at this point you have helmet hair, chocolate fingers, aren’t doing the calm blue ocean thing and a look on your face of despair from when you found out your parents were having a second child. You have no idea if your default fund is even worth it or not. Well, this is where the occupation demand for a financial planner came from, to help you understand these complexities of your superannuation and help guide you to where you should be. Some people need more growth and others need that 50% defensive asset base. It’s important to evaluate your circumstance and understand that having money in super won’t be the be all and end all for you. Even if just knowing where your funds are invested for now, then that’s a huge step in being proactive towards an ultimately greater superannuation savings.