Everyone wants a good retirement, but some of us might be inadvertently self-sabotaging our superannuation.
When it comes to superannuation, there's no shortage of comparison tools. We can compare our nest egg to the average for others our age and quickly find which superfunds take the smallest fee. But is enough attention being paid to our allocation?
Last month, my fellow colleague Bronwyn Allen wrote that 30% of Australians have a 'vague idea or no idea' of their superannuation balance. If people don't know how much they have in their super, there's a good chance they're unaware of what it's invested in.
It underscores a concern shared by Alex Vynokur, the founder of Betashares, Australia's second-largest exchange-traded fund (ETF) provider. Everyday Australians could be giving up a wealthier retirement by overlooking a critical element of investing.
The lowest-cost option isn't always the best
Fees can have an enormous impact on any investment portfolio over a long period of time. There is no denying that people should pay attention to the fees charged by a superannuation fund. The problem is that too much emphasis on cost might cloud other important factors.
In an interview with The Australian Financial Review, Vynokur raised his view on an underrated issue in super, stating:
It's all good to 'compare the pair' and be proud of the low management fee, but there's actually a lot you lose via poor asset allocation.
Vynokur believes too many young Aussies' super are in a balanced option by default. And not because of risk-averse decision-making. Rather, the Betashares CEO puts it down to a lack of familiarity with the topic or a complete absence of interest.
Typically, a young investor can afford to take on higher risk with several decades until retirement, allocating more of their assets to stocks. However, a balanced fund can be around 30% invested in fixed-interest and cash, according to MoneySmart.
Where is your superannuation invested?
The difference in portfolio allocations could greatly change the outcome for Aussies in retirement.
In the 11 months to 31 May, Australian Retirement Trust's balanced option returned 8.8%, while the growth strategy grew by 10.2%. Let's assume these returns were applied as a per annum performance for a $50,000 superannuation account (with contributions of $5,000 each year) over 10 years; the outcome would be:
- Balanced option — $191,457
- Growth option — $212,520
There is no right or wrong allocation. What is important is knowing how your superannuation is invested. Only then can someone decide whether it is allocated appropriately based on your own individual needs and goals.
