I get why they have taken this approach. It is easy. But it misses two critical things.
By only looking at returns, it ignores what the different funds were invested in. There are broadly four types of assets. Business (shares), property, bonds, and cash. Shares and property generally get higher returns compared to cash and bonds. However, shares and property are also riskier.
By focussing just on the returns, it ignores the fact some people want and need more security and less risk. To say people can choose other investments is a bit of a cop-out as history tells us that most people are confused by super.
One of the consequences of this report is the Super funds are now being forced to push the envelope in terms of how much risk they take. Instead of holding secure assets like cash/bonds, they will start lending money to hedge funds or use expected rent from their property investments as a proxy for cash. If there is a significant recession this could all end badly.
The other issue is there is a great body of work that shows there is no correlation between funds that have performed well over the last five years and funds that will perform better over the next five years. The Government seems oblivious to this.
What you need to do
Personally, I don’t like any investments that I don’t know what they are. Therefore, what I recommend is to move to a tailored investment mix that is made up of a selection of Australian shares, international shares, property, cash, and bonds that suits you and your age/financial situation.
As a rule, people under 55 should have a relatively high proportion of shares and property, while those older than this tend to move (slowly) to having more cash and bonds. This way you can take advantage of the growth opportunities while you are young and then reduce the risk as you age.
Start by looking at your own super fund to see if they offer these investment options. If they don’t, find one that does.
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