Beyond the standard ‘fees and performance’ questions that are drilled into us when evaluating a financial product, there’s more to super than meets the eye.
But where to start?
Well, we’ve outlined 5 questions to ask of a super fund. Consider it a health check of sorts. It’s worth asking these questions of your current fund/s or any fund you are considering joining in the future.
Firstly, let’s start with the big one.
1. Is it your super fund?
A staggering 70% of Aussie employees let their employer choose their super fund. Up there with frosted tips, knighting Prince Philip and the current plebiscite, it’s a bloody terrible idea. Your super is yours. This can not be understated. It’s like letting your boss choose your home loan, where your next holiday destination should be, or choosing which gym you should sign up to. You just wouldn’t do it, right? So if you do have the choice, then realise superannuation is not a one-size-fits all, so exercise your right to choose.
Another thing we hear of regularly is people being loyal to their fund because their partner or parents are with the same fund. To stay with their super fund because their partner or parents are with the same fund is like going to a hairdresser just because your mate does. There’s no rhyme or reason that this should be the case.
2. What are the investment options?
Superannuation will become your salary when you retire (lightbulb moment, right?) so it’s important to understand how it works, where your money is invested and what options you have.
We’re in this life thing for the long haul, so your super fund should be able to move with you as your priorities change.
Most funds give you options around how your money is invested through different portfolios. You’re also often able to put your money into multiple portfolios. What’s most commonly spoken about here is growth and defensive strategies.
Why do you need to take notice of investment strategies? Because over a working lifetime, your money can perform in vastly different ways
SuperGuru suggest asking yourself the following basic questions when making a decision:
How much risk do I feel comfortable taking? If you can handle more risk, perhaps selecting a growth option is right for you.
What type of return am I seeking for my money?
How long will I be investing for?
The answer to these questions will be personal. Age is a big factor. Again, SuperGuru state, “if you are young and have a long time until you will need to access your money, the short-term ups and downs that can occur when investing in higher risk options…may not be so important.”. They go on to outline that “history has shown that short-term fluctuations tend to be outweighed by the higher returns from these ‘riskier’ types of assets.”
However, if you’re getting close to retirement age, and wishing to access your money sooner, then it might be wiser for you to invest in assets that are considered to be lower risk (ie: defensive).
At GROW, we have 7 investment options to choose from. From High Growth which is weight to 100% growth assets, down to our Capital Stable option which includes 70% defensive and 30% growth assets. Want more on this topic? Read here.
3. What options do you have within your fund?
Super is a big chunk of your money. It’s a big chunk of our money. In fact, $2.3 trillion Aussie dollars are invested in super. So beyond simply electing which core portfolio to put your money into, we think you should be able to have a say in what industries your money is invested in, based on what matters to you!
See if your super fund has these options. Read more here.
4. What’s your cover?
If you’re not a smoker, or a blue collar worker, chances are you might be paying for insurance as if you are one! With such a huge focus on account and admin fees, insurance fees are often overlooked but could be eroding your balance without you know.
Typically your super fund will offer you default insurance, which is likely be charged at a premium based on your circumstances or, as it turns out, default circumstances. In a recent report by ASIC Member experience of superannuation, June 2017, it was uncovered that many trustees are defaulting their members as ‘smokers’ or ‘blue collar workers’ for insurance purposes. This results in higher insurance premiums and can have a negative financial impact. There’s never been a better time to quit it seems.
At GROW, we believe that you are your biggest asset, so we want to ensure you have the power to protect yourself on your terms. In an Australian first, we’ve built an entirely online, paperless insurance system. Users can transfer cover, increase or decrease their life and TPD insurance, receive income protection insurance up to $6,000 per month (or more by contacting us), or simply opt out if they don’t want cover. We chose to work with Hannover Re to offer our users insurance. They’ve held a superior A+ rating for over a decade and won the Rainmaker Selecting Super Award for Best Personal Insurance Offering of the Year in 2016.
So, ensure you’re able to manage your insurance in a controlled environment, and that you’re not paying for what you don’t need.
More on GROW’s insurance offering here.
5. Diversify and conquer.
You can’t go anywhere these days without talking about diversity, and your superannuation is no different. The ol’ don’t put all your eggs in one basket adage is spot on with super. By diversifying – and having your super invested across a range of assets – means you’re less exposed to a single economic event. ASIC state “diversification reduces overall investment risk and reduces volatility of returns on your investment portfolio as a whole”.
So, sure tech might be hot right now, but how sure are you that it will be in 5 years’ time, let alone 30 years time when you’re ready to retire? We’re not saying it won’t be, we’re just mindful of diversify, diversify, diversify. If all your money is in one industry, you’re not really buffering yourself against the ups and downs, are you?
Humblebrag: GROW’s core portfolios invests your super into 7,500+ shares through Dimensional Fund Advisors.