And how far can it take you?
If you’re like the majority of the general population, there’s a high likelihood that you have not given much thought as to where your superannuation goes. You just set up your account with the default provider chosen by your employer and then forget about it until retirement age when you (hopefully) come back to a tidy little nest egg, right? Well, what if we told you there are a lot more options for your super than you are probably currently aware of – some of which might even get you a much healthier return come retirement time.
At Super Network Financial Services, we understand that everyone has different goals and dreams for their retirement. Whatever your aspirations are for retirement, we will work with you, and our team of expert professionals, to develop a personal strategy tailored specifically for each and every client. We also acknowledge that managing your superannuation and planning for retirement can be a daunting task, so we aim to simplify the process for you.
Essentially, super investments can be divided into two options: pre-mixed (diversified) investment options and sector-specific investment options.
Pre-mixed/Diversified Managed Fund Investment Options
Diversification is a relatively ‘safe’ investment strategy that minimises your portfolio’s risk for stable, but modest returns. It works on the premise that different asset classes will do well at different times – evening out your losses and gains. Most funds will offer pre-mixed managed funds for ‘conservative’, ‘balanced’ or ‘growth’ options, combining different asset classes into the one managed fund.
A pre-mixed managed fund may include a blend of shares, property, bonds and private equity. The ratio of defensive assets (such as cash and bonds) to growth assets (such as property and shares) is usually suggested in the name of the asset. For example, a balanced investment may consist of 60% growth assets and 40% defensive assets. Conversely, a growth investment may have 80% growth assets and only 20% defensive assets.
Diversification is the safest way to protect yourself from a declining investment or a poorly performing asset class, whether this is the result of a market crash or perhaps the failure of a fund manager. As well as diversifying across asset classes, it’s also important to spread your investment out over several options within those different asset classes. E.g. amongst your growth assets, you could buy shares across a range of industry sectors from resources to healthcare to IT. You can also diversify even further by investing with more than one fund manager or product issuer.
As well as these options, some funds afford you the ability to invest in term deposits or shares of your choice, for which they usually charge a brokerage fee. These can be Australian or international stocks, depending on which fund you are with.
Sector-Specific Managed Fund Investment Options
Unlike a diversified fund, sector-specific investment options are generally managed funds consisting of a range of investments within the one asset class, e.g. Australian shares or international shares, Australian property or international property, Australian bonds or international bonds.
Sector-specific investment options are often managed funds made up of a blend of investments within one asset class and could include shares (Australian or international), property (Australian or international or fixed investments (Australian or international).
The most common sector-specific investment options are:
Cash Funds
These short-term investments are generally considered very low risk and can include short-term money market deposits, short-term government bonds and bank bills. Income is paid either monthly or quarterly to your super fund.
Fixed Interest or Bond Funds
Also considered low-risk investments, these include government bonds, bank bills or mortgage-backed securities. They pay a fixed rate of interest until maturity, but the underlying capital value can rise and fall depending on interest rate fluctuations in the market (or currency fluctuation for international investments).
Mortgage Funds
As the name suggests, this is the investment in property loans (mortgages). Depending on what fund you are with, your risk here will vary, as it is dependent on the type of borrower and nature of the loan. Essentially, as long as your borrower is paying interest on their loan, you will receive an income. However, your investment does not increase in value and can actually fall in value if borrowers are unable to repay their loans.
Property Funds
Property investments can be made through a self-managed superannuation fund (SMSF) for residential or commercial property or property developments. They can be risky, as there is no guaranteed interest rate or return, and can make it difficult to withdraw your money from the fund on short notice.
Share (Equity) Funds
These funds offer the potential for a higher return than the other options, however, they also come with a much greater risk. They invest in listed shares both on the Australian ASX and international stock exchanges.
There are numerous different combinations of asset classes available within these main categories, so it’s important to look deeper into your ‘conservative’, ‘balanced, or ‘growth’ strategy to find out where your super is really going!
If you’d like to perform a super check and assess if your current fund is meeting your needs, Super Network can help. Contact us today for an obligation-free consult.
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