Superannuation Funds - Free Financial Advice for Australians

The Christmas and New Year period is a time for get-togethers with family and friends and inevitably questions of politics and money enter the conversation. Where and how to invest is often the topic, especially if people know what I do. The younger generation is often after the quick buck, always asking for a good tip. They're always after a 50% return, and they want it now. Many of the twenty something's I spoke to over the Christmas/New Year break have invested in shares, some with success, but often it is success mixed with disaster. Interestingly none of these twenty-something's are actively managing or even give a hoot about their superannuation fund. They don't know how much they have, where it is, or who runs it. They often have three or four different funds at once so are paying three or four lots of admin fees. They don't understand any of the benefits of their existing fund or how to maximize those benefits. Often their super fund is their biggest asset

It's like saying "I just bought a house but I don't know where it is, what it's like or how much it's worth".

Superannuation for most people will be their second biggest asset when they reach their 50s. It certainly is if you have just entered the workforce.

This is serious. Let's take a 26 year old who may have been working for four to five years. If he has earned the average wage for the past four or five years, give or take a few lower earning years when he first started, he should have a balance of at least $20,000 in the superannuation system - and I say 'system' because he probably has a few funds, some gaining very little return.

Not all funds are the same.
With superannuation choice now well and truly here to stay there is no excuse for not having one of the best performing funds in the market. It's just a matter of finding it. You do not have to be in an industry fund or your employer's fund just because you are there now. It's not just about performance but it does play a huge part in your future retirement benefits.

Consider funds A and B - (sounds a little like the TV ads) - how will performance affect the end result?
Fund A performs at 10% per annum for 25 years = $865,000
Fund B performs at 12% per annum for 25 years = $1,236,000

Both funds have an initial investment balance of $20,000 plus ongoing contributions of net $6000 P.A. (Management fees are not taken into account for either fund which can also affect performance).

That's a whopping $371,000 difference over 25 years.

If we do the same calculations over 20 years then the difference is 164,000.

So if you are age forty or less with 25 years to go in your super fund it makes a big difference . We know its compulsory so make sure its working hard for you. Now who can say that the fund will perform 2% better for the 25 years? No-one can. Performances rankings will change but guess what, that means you can change. You are not locked into your existing super fund's investment choices. Your future super fund could be in asset classes that are not available today. The super fund you may have in 10 years may not exist today.

How do you know if your fund is performing? The answer is simple, read the reports, do some comparisons, speak to an adviser, do some research. As an example the top performing funds in the top quartile for the last three years have ranged from between 19% and 25% return. In the bottom quartile, however, they have ranged between 3% and 7% return. The question we must ask ourselves is who has their super assets in the bottom quartile? There must be some people there for the funds to exist. They can't exist without members and contributions so who are the fools in these funds? Clearly they are the fund members that don't care, don't know or are sitting in cash. Don't you be one of these fools.

One of the most important choices you have is fund selection, for example if you are in a cash or Australian fixed interest it's impossible to take advantage of returns from say China or other international shares or even from the Australian share market.

Make the right choice
The fund you are in or the fund you choose is important. If you think you have time, think again. If we use the above example of Fund A and Fund B then that $250k difference is about $10,000 each year. The decisions we make in life impact and it's never too early to make a good decision so to help you make the right choice I have put together a checklist to ensure you are in the best fund for you. Please pass this on to everyone you know, especially the twenty to thirty year olds, and learn to love your super and take an interest.

Super Checklist
If you answered 'no' to a number of these points you might like to consider changing funds. I don't mean hunting for better returns but if your fund has not been performing in the top quartile for the last 3-5 years change to one that has.

Whether you have $10,000 in your fund or $150,000 you have the opportunity to get the best fund to suit your needs. Flexibility is the key. If you're not going to take an interest in your super fund delegate responsibility to an advisor, us, who will look after and review your fund. If your adviser can impact your returns by 2% or over $370,000 over 25 years then it's certainly worth paying the few hundred tax deductible dollars it will cost you each year.

If you need advice on your super fund call or email us now.

Superannuation Funds - Free Financial Advice for Australians

Superannuation - Let's Wake Up!!

Article originally published in March 2008.

Venn Williams - Halogen Pty Ltd