“Look at the investment options in your existing super fund before moving funds. It all comes down to having the right mix of growth and conservative investments.”

Previously I have written about what to look for in a super fund. To recap, I recommend you look for a fund with relatively low administration fees, have passive or index investments if possible, and investment options that are going to maximise your returns.

In this article, I am going to expand on this last point and show you why this is the most important piece of the puzzle.

What is the difference between assets

Broadly, there are four types of assets. Business, property, bonds and cash. Businesses and property can include your own business or investment property through to large multinationals such as Apple, Amazon or Westfield. These are classed as growth assets and usually they provide higher returns. The catch is that if not done correctly, they also have more risks.

Bonds and cash are when you lend your money to others (governments or other corporations) and get interest in return. These are classed as income assets. They provide an income but no real growth. While there is very little risk their value will fall, there is the risk that it will not keep pace with inflation. In addition, the more you have in bonds/cash, the lower your overall returns are going to be.

Getting the investment mix right in your superannuation
How to chose your investment options

There are two ways you can choose your investment options. The first is to go with the appropriate pre-mixed option with your super fund. The other is to choose an appropriate mixture of international and Australian shares, property, and cash/bonds. The pre-mixed ones are generally a bit more expensive, but don’t require any ongoing management or thinking.

Using the pre-mixed options of some popular super funds, let me show you how this can make a big difference to your final super balance when you retire.

To illustrate, I will use three people, Chris, Emma, and Tony. They are all 48 years old, have $350,000 in super, earn $120,000 per annum, and are going to continue working until they are 60. Note that this is not endorsing any of these funds.

Chris followed the advice of the Barefoot Investor.

  • He has chosen the low fee Indexed Balanced option in Hostplus.
  • This has very low fees, 25% in bonds/cash, and 10-year average net returns of 9.20%.
  • At retirement Chris would have nearly $1.3 million.

Emma is in the Australian Public Service.

  • She has chosen the default investment option in the Public Sector Super accumulation fund (PSSap).
  • This has relatively high fees, 30% in conservative assets, and 10 year average net return of 8.40%.
  • At retirement Emma would have $1.2 million.

Finally, we have Tony who is self-employed.

  • He has chosen to put 50% into the Index Australian share and 50% into the International share with the Colonial First State Whole Super fund.
  • This has higher fees than the Hostplus Index Balanced option, 100% in growth assets, and a combined 10-year average net return of 11.67%.
  • At retirement Tony would have $1.6 million.

Now, the biggest mistake people make is to assume in situations like this that they need to change funds. This is not necessarily the case. Instead, I encourage everyone to look at the investment options in their existing super fund before moving funds.

To illustrate, lets help Chris and Emma change investment options within their existing funds. Chris could have nearly $1.6 million, and Emma could have more than $1.4 million.

Why? It all comes down to having the right mix of growth and conservative investments.

I live and breathe super. If you want to discuss yours, book a chat via the button below. Alternatively you can contact us at team@constructwealth.com.au.

About the Author
Phil Harvey is an independent financial adviser. In 2017 Phil set up his company Construct Wealth to help clients best manage their finances so they focus on what is important to them. He is a founding member of the Profession of Independent Financial Advisers and a tax financial adviser, registered with the Tax Practitioners Board.

General Advice Warning
This advice contains general information. It may not be suitable to you because it does not consider your personal circumstances. Phil Harvey and Construct Wealth are authorised representatives of Independent Financial Advisers Australia (AFSL 464629)

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