Posted by Marshall Brentnall on 05 February 2014
Superannuation is an example of a ‘nest egg’ asset. It’s designed to give you an investment that you can make regular contributions towards – the ultimate aim being to create ongoing income upon retirement.
It may feel like this is something “you can deal with later”. However, here’s a secret… there are a number of drivers when it comes to maximising the long term performance of your super fund.
Here are the key factors to consider, and get ahead, early on in the superannuation game.
Drivers in maximising performance
Driver 1: Fees and charges
It’s important to minimise the fees and charges you pay. However, often too much time is invested debating high fees versus low fees. Remember, this is about the long term investment strategy and shouldn’t be clouded by the short term. This means you need to examine your fund’s asset allocation as well as your own behaviour.
Driver 2: Asset allocation
Have you made an active choice on how your superannuation is invested? No? You’re not alone. The majority of people rely on their employer to select a default fund. If you take this approach, you may end up having 40 per cent of your super invested in cash and bonds.
Driver 3: Your contributions
Contributions have a very real impact on the performance of your fund. Not enough of the population consider strategies such as salary sacrifice. You need to get the magic of compound interest working in your favour – did you know that $1,000 saved today, and invested wisely, could be worth more than $13,000 in thirty years?
Types of super funds
There are many choices of superannuation funds available (outside of those offered to Federal, State or Local Government employees), so you need to make an informed decision. If in doubt, seek guidance from a licensed financial planner.
Retail funds are usually run by the major banks or investment companies, and are open for anyone to join. They offer:
- wide investment choice, including direct shares;
- comprehensive range of insurances and transparent pricing of investments; and,
- most retail funds range from mid-to-high cost, but some are now offering a low cost alternative.
Several of the larger industry funds are open for anyone to join. However, there are still others which are restricted to a particular industry. The main features of industry funds are:
- generally low-to-mid costs,
- limited range of investments and insurances; and,
- not-for-profit, which means all profits are put back into the fund.
Corporate fund are arranged by an employer, for the benefit of its employees. This can be facilitated by the appointed Board of Trustees, or at times managed within an industry super fund or large retail fund. They offer:
- moderate-to-wide range of investments;
- low-to-moderate costs for large employers, but higher for small employers; and,
- some older corporate funds provide defined benefits for members, while the majority are accumulation funds.
Self-Managed Superannuation Funds (SMSF)
These are “do-it-yourself” super funds for those who want to manage and control their superannuation. While you may have more direction, this option also incurs additional responsibility, risk and workload. Make sure you understand the intricacies involved if taking this up.
Superannuation success begins with you… it’s your choice who administers your super, how your funds are invested, as well as how much money you are putting aside. Make sure you learn about your options and if you need more assistance, speak to a licensed financial planner.
Marshall Brentnall is a Director of Evalesco Financial Services, an award winning financial planning firm located in Sydney's CBD. With more than 15 years experience in the financial services industry, Marshall is committed to ensuring that his clients are making smart money decisions and taking steps to increase the likelihood of achieving their financial goals.