For people under 30 years old in particular, how much superannuation money they will enjoy when you retire at age 65 (by 2023 the official retirement age in Australia will be 67 years old) depends more on the annual fees you pay on your fund than the annual growth of your fund. Less fee paid to your superannuation providers means more money for you in the future. It’s great to be a member of high performing funds, but you need to remember that past fund performance doesn’t predict the outcome of any future performance.
Superannuation funds that outperform the market in the previous period year will probably not do too well in the next period and vice versa, thus basing your choice of superannuation funds on its annual performance is probably not the best strategy. This is because many people would switch funds, and fund managers will have difficulties allocating investment to achieve the previous level of return. Also, remember that changing superannuation fund too often will create unnecessary extra admin fees.
In addition, don’t forget to check out fatcat funds – don’t put your money in any fund with a fat status. Finder.com.au has a good overview of how much annual fees you need to pay for a $50,000 investment – check here. My default option for those who are not interested in what superannuation fund they have is Hostplus’ Indexed Balanced fund with 0.05% annual fee (probably the lowest in Australia to date). This fund will suit the need of 95% of Australians with a superannuation account.
Now that you have the right superannuation fund for your need, every five or so years adjust the level of risk of your fund to match your age. You should shift your fund allocation from a growth-based fund to a less risky fund with defensive holdings which include bonds and income-focused stocks. The table below gives you a rough guide on how to split up your investment strategy based on your current age.
Being too eager in actively managing your superannuation fund or any type of long-term investment fund is often a bad idea – you will end up making silly investment decisions. Revisiting your fund every year is the best strategy (instead of checking on them every other week or month).
Once you are comfortable with the risk involved in investing directly in shares, you might want to invest in individual shares through your superannuation fund. I will cover this topic in a future post.