Super & Insurance
Nine tips for choosing a super fund
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Have you ever stood in an ice-cream shop trying to decide which of the 100 flavours to have? You ask yourself, "do you play it safe or go for something new and exciting?"
When it comes to choosing your superannuation it's a bit like being at the ice-cream parlour, only you don't get to enjoy your superannuation in the same way once you have made your decision. Perhaps you are like most people in selecting your ice-cream and superannuation: you stick with what you know.
Plenty of us prefer the safer choice. However, when it comes to superannuation, the GFC really changed the reality of what the safer choice actually is. It showed that being a passive investor is no longer good enough, as seen by so many retirees over recent years who've discovered they've simply not accumulated what they need.
Believe me, I know that making the decision to change super funds can seem like a huge task, especially if you don't know where to start. So before you even go surfing for information here are a few things you need to consider:
- The type of fund you invest in can determine things like the level of fees you pay and the flexibility you will have in relation to your investments.
- The types of superannuation funds available, including managed funds (such as Public Super Funds), Industry Super Funds and Self Managed Superannuation funds. Also known as a SMSF, the latter fund is designed to give you back ultimate control over your own investments, whereas Industry and Public funds provide limited control and the decisions by other investors in the fund will impact your returns.
- The time and effort you are prepared to put into managing your super will determine whether a SMSF is a suitable option for you. To find out what is involved in establishing a Self Managed Super Fund and for answers to frequently asked questions click here.
- You may recall the many advertisements on TV about lower fees charged by Industry Funds, however, it is important to be really clear about what you get for the fees you pay as lower fees don't necessarily equate to higher returns.
- Some funds will give you opportunities for high growth and some are more conservative in their investment approach.
- Some funds will allow you to switch your investments without fees, and others won't. The ability to switch is something I see as really important. There will be times when it makes sense to move from growth type investments like shares to a conservative approach in cash, the GFC has proven that buying and holding growth assets is not a low risk approach.
- Your age and how much time you have until you retire will have a big influence on the type of assets you invest in. For example, if you have at least five years then you will be missing out on growth unless you have a significant weighting to shares.
- Determine your tolerance to risk by completing a risk profiler and therefore find out the type of investments that are likely to suit you. There is no point leaving money in cash indefinitely if your risk profile indicates that your tolerance to risk would allow you to get into investments that attract much higher returns.
- The level of returns you are looking for is another important consideration. For example, Australian shares outperform all other assets classes over the long term, and generally into double digits, whereas cash type investment returns are generally much lower.
I see the next few years as presenting the best opportunity in 40 years to be in growth assets, so it'll pay off in the long run to spend time reviewing your superannuation. Remember that the highest risk time is before the collapse, right when everyone is talking about how much money they are making from the market and the masses are diving in. By comparison, we are currently still in the wake of the correction and the masses are still heavily in cash, a clear sign for the saving investor to act.