If you could add $61,000 to your super fund in 10 years, would you do it?
Of course you would, however by choosing, or defaulting into, funds that underperform and charge high fees, you may be leaving money like that on the table.
Super is the biggest investment most Australians will ever make, yet too many unknowingly behave as if they are starring in the TV show, “Married at First Sight.” They commit to something they haven’t gotten to know or understand.
It can be a very expensive error. The recent Productivity Commission estimated that super investors would gain $3.9 billion yearly by choosing better-performing funds and reducing fees by consolidating accounts. That would give a 55-year-old today an additional $61,000 by retirement, and a new job entrant an additional $407,000 when they retire in 2064.
Here’s a few ideas on how to send some of that money your way:
- Match your investment option to your goals. If you’re young and have many years until retirement, a growth fund may make sense for you. On the other hand, your age may not matter if you have difficulty watching wild market swings. In that case, you may prefer a more conservative option.
- Once you know how you want to invest, compare the long-term performance (five years or more) of funds in that category. Compare growth funds to growth funds, balanced funds to balanced funds, etc, and be aware of differences between funds in the same investment category. Some funds labeled “growth” may have higher allocations to growth assets such as shares and property, compared to another super funds “growth” option, for example. What is important, however, is that you select an asset allocation that matches your financial goals and risk tolerance.
- If you have more than one super fund, consolidate them to eliminate redundant and high fees. This is actually a very easy and profitable move. In most cases, the super fund you decide to consolidate to will have a ‘find my super’ option, and will do all the hard work for you. If you need to know more, the Australian Securities & Investments Commission (ASIC) shows you how here. Be sure to review how switching your super affects any insurance you have with it.
- As we all know from watching the daily gyrations of the share market, you can’t control everything. But you can control your costs, and that will make a huge difference to your super fund over time. According to Canstar, the average cost on an $80,000 super balance ranges from $466 to more than $2,000 – a year. While you cannot control future performance, you can control costs. This ASIC calculator helps you compare funds, including fees.
Finally, don’t make yourself crazy. Constant tinkering is more likely to hurt than help, but do get to know your super and increase your odds of a decades-long blissful union.
Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
29 January 2019