Checking Your Fund's Health
Start by logging into your super fund's website and verify if your employer is contributing the obligatory superannuation guarantee entitlements according to the established criteria. If you are 18 or older, or work over 30 hours a week under the age of 18, your employer should be contributing 11% of your earnings to your super fund [source]. Ensure that this entitlement is being met.
Fees and Returns
Understanding the fees and charges associated with your super fund is critical. Different funds have varying fee structures that can affect your investment returns. In general, a balanced or growth index fund should cost between 0.1% to 0.3% annually. Opting for unnecessarily expensive funds can significantly diminish your returns.
Brenton Tong, Managing Director of Financial Spectrum, suggests considering simpler, reasonably-priced options that offer good returns. Over your working life, a mere 0.5% difference in fees can accumulate to over $120,000 in additional costs [source].
Choosing Investments Wisely
Reviewing your investment options is as vital as understanding the fees. An investment decision made when you first joined the fund might not align with your current financial situation. Determine the risk profile of your investments and ensure they correspond with your investment time horizon and tolerance.
Youthful investors generally benefit from exposure to growth assets due to their longer time horizon. On the other hand, those nearing retirement might prefer defensive assets to shield their nest egg from market volatility. A well-diversified investment strategy that aligns with your risk tolerance is crucial for long-term success.
Assessing Risk
Your investment strategy should consider your risk profile and overall financial goals. The general rule is that if you have more than 15 years until retirement, you can afford to take on more risk. However, if retirement is imminent, it's advisable to adopt a more conservative approach.
By aligning your investments with your risk profile and investing horizon, you reduce the likelihood of panic selling during market downturns. Ensure your risk profile meets your long-term objectives and reflect your comfortability in handling potential market volatility.
Striving for Long-Term Goals
It's crucial to consider the prevailing market dynamics before making any significant changes to your super fund. Experts advise against selling investments during market downturns, as it can lead to capital losses. Historically, markets have bounced back after major falls. It's essential to stick with your investment strategy even during turbulent times and reassess your risk profile once stability returns.
Supporting Social Values
Many investors are becoming increasingly aware of the environmental and social impact of their investments. Investing ethically entails avoiding investments related to coal, gambling, and tobacco, among other undesirable industries. Understanding how your super fund invests and engaging with socially-aware investment options can align your retirement savings with your principles.
Some funds offer pre-mixed ethical or sustainable investment options, while others provide exposure to clean energy investments. Conduct thorough research and read the investment option guides of various funds to understand their investment processes and screening policies. Consider specialist ethical funds if your current fund does not provide desired choices.
The Impact of Smart Decisions
To illustrate the significance of well-informed decisions, consider the following scenario. In 2013, Steve and Melissa reviewed their finances and made some strategic changes to their super fund. They switched to a lower-cost ethical fund that aligned with their values and had a bias towards technology. Additionally, Steve started making annual contributions of $5000.
Ten years later, their portfolio has returned 12.95%, compared to the 8.1% return of their old fund. Taking into account their additional contributions, their super balance is now $397,765 higher. By minimizing fees, making informed investment choices, and contributing extra, they have significantly boosted their long-term retirement savings.
If you rely on your super fund for your retirement, it's crucial to put time aside once a year for a comprehensive assessment. Make sure your investments support your goals, align with your risk profile, and reflect your social values. Revitalizing your super fund can lead to a brighter financial future.
