You have been busy (and definitely not Slack) and gone through the paperwork that combines your super funds into one fund that you will keep for your working life. You have probably found an Industry Super Fund provider with established performance and low fees … Sorted!
Slack Investor is proud of you!
However, a little more work is required. The default investment option for most funds is called “balanced” – that sounds pretty cool – who wouldn’t want to be balanced! Generally Balanced options comprise 60-70% in growth assets and 40-30% in income assets.
The options that your fund may offer you are … in terms of increasing risk are
- Cash – Invests 100% in bank deposits or other ‘capital guaranteed’ products.
- Conservative – Around 30% in shares and property with the majority in fixed interest and cash.
- Balanced – About 70% in shares or property, and the rest in fixed interest and cash.
- Growth – At least 85% in shares or property.
If you are young … go for Growth, or High Growth … every time! Your super will be invested for 40-50 years and this is plenty of time to ride a few bumps that Growth assets such as shares and property can sometimes throw … Embrace risk and ride these bumps …. It is a good lesson to realise that the beautiful dance between risk and growth must be part of your investing life – Without risk, it is impossible for your investments to grow substantially.
Depending on your time frame, your tolerance to risk will vary. There are good reasons for someone approaching retirement to step back from a growth at all costs investment strategy. But, if you are just starting your working life, and want to grow your superannuation in a meaningful way … time is on your side … and risk is part of this process …
Australian Super have crunched the numbers and found that
YOUNG workers choosing “low risk” investments for their superannuation may be up to $170,000 worse off
The appealing sounding “low risk” options mostly deliver returns not much higher than inflation … And, we are not interested in just tracking inflation … we want growth!
If your superannuation amount is low and you want to give it a bit of a boost, and you earn less than $51,021 (2016/2017 year), the Australian government runs a co-contribution scheme that will reward you on a sliding scale – If you earn less than $36,021, the tax office will automatically kick in a maximum $500 for a $1000 after tax contribution to your super fund – This reward gradually tapers to zero as your income approaches $51,021. This is a pretty good return for your investment!
Grandparents and parents please note – if your wonderful offspring have a part-time job and a compulsory super fund – and you have a windfall that you would like to pass onto the next generations that cannot be frittered away on teenage pleasures – I am reminded of the fantastic George Best quote here.
I spent a lot of money on booze, birds and fast cars. The rest I just squandered.
Despite the wisdom of George Best, a gift of $1000 that would go directly to your loved one’s super fund would attract this govt co-contribution and be a great lesson in the benefits of compounding interest.
I’m currently in the process of trying to sort out my super and never new about the co-contributions. I’ll definitely be looking into them. I’m only 23 as well so I think I will be looking to change my portfolio type to growth as well. Thanks for the great insight!
Thanks for the kind words Undergrad. I know it is difficult to think about an investment that you won’t get your hands on for forty years … but if you get it organized, in a low fee environment, it will take care of itself and, it isnt a bad place for any cash windfalls that you come across … PS. Like your site (cute dog!) it is great to see another Australian finance blog spring up! Happy Investing – Slack Investor
Interesting idea to gift younger family members some money into their super fund, bonus of the co-contribution! I never have thought of that before. Great simple overview.
Mrs DDU
Thanks Mrs DDU … it is an amazing return on your gift … 50% for a $1000 investment for a working child. Sadly, it doesn’t have the same immediate impact as a new Playstation! – However, more importantly … the greatest gift of all is new life … I am following your journey with all fingers crossed … You both seem to be the kind of parents that will make a fine new Australian!
I am trying to convince my partner to engage in the co-contribution scheme. I earn too much to take advantage of it, but he can. However it is terribly hard to talk him into it as he sees it as ‘cutting off his own cash flow’ to put it into a fund that you cannot touch for another 30-40 years or so. Gah!
Hi Pia … its tricky with partners …and so important that you are working together financially. The Barefoot Investor has the fantastic idea of regular date night with your partner to talk about, among other things, your current finances – and where you want to be.
Over a great meal and a bottle of wine you can point out the incredible return of 5o% on your $1000 investment that the co-contribution scheme allows. In some cases, that $1000 can be better saved somewhere else (towards house deposit or some shares)- but wherever you put it, at least its a start … and that money is saved money – it becomes one of your assets. It is your assets that will make you financially independent!
The co-contribution a great example of delayed gratification – the money is locked away in a tax-efficient environment – and growing till you retire. Good luck with the date night.