Superannuation | Slack Investor

April 2019 – End of Month Update … and, Lets Get Concessional

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. Bumper times this month.

There were rises in all Slack Investor followed markets (ASX200 +2.9%; FTSE100 +1.3%; S&P500 +3.9%). All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Concessional Contributions – Lets Get Concessional!

Thanks Jane … You are inspirational to our financial independence – From deskgram.net

If you are just starting your savings program or getting your house deposit together, then this is another higher order issue to leave alone. If you have got the basics organized and have a good chunk of equity in your house, and looking to boost your super in a tax-effective way – then tune in to this super boost before the end of tax year.

Concessional contributions include your employer’s compulsory super guarantee contribution of 9.5% and any salary sacrifice contributions that you make. They are called “concessional” contributions because they go into your super account from your before-tax income and are taxed at the “concessional” rate of 15% rather than your “marginal” rate. You are not allowed to exceed the $25,000 cap on concessional contributions, so it is important to get your sums right.

For a gross salary of $90,000, your employer pays the 9.5% super guarantee of $8,550 to your nominated super fund. That means you have up to $16,450 ($25,000 -$8,550) left on your cap to concessionally contribute to super before June 30 – to save on tax and boost super.

Salaried workers can concessionally contribute by using salary sacrifice, but this involves prior employer agreement and using a salary packaging company to do the administration. Some of the contribution rules have relaxed since July 2017 and you can now contribute by Personal Contribution. There are pros and cons of each contribution method, but as personal contributions don’t need the agreement of a third-party, I find this much easier to do.

You will have to let your super fund know that you are claiming a tax deduction for this contribution. Use a standard ATO personal contribution form or, it is simpler with some super funds where an online application is all that is needed. You must get your contribution to land in your super fund before the June 30 deadline.

Benefits of salary sacrifice and additional concessional contributions

If your marginal tax rate is higher than 15%, making extra super contributions can reduce your tax. For the $90,000 a year example, your marginal tax rate is 32.5% + Medicare levy. Concessional super is taxed at just 15%. If your marginal tax is higher, you can save more. Industry super has a calculator where you can enter your own figures. For the case above, a 45-year-old will have a tax saving of $3222 this year and an extra $405,000 at retirement by maximizing concessional contribution.

From the Industry Super Funds Calculator for a 45-year-old on $90,000 who maximizes their concessional contributions and save $3222 this year – and ends up with an extra $405,000 at retirement with these assumptions.

Let’s get concessional, concessional,
I want to get concessional,
Let’s get into concessional,
Let me hear your body talk, your body talk …
Many apologies to Olivia Newton John … for real inspiration, check out the Olivia on youtube

APRA … its even better than OPRAH

Hang on Slack Investor … What are you saying? Oprah, the font of lifestyle guidance … has a rival! How can the Australian regulatory authority APRA match Oprah wisdom that spouts such useful advice as this …

You can either see yourself as a wave in the ocean – or you can see yourself as the ocean – Oprah Winfrey – Source

Wheras Oprah has been an inspiration to millions, Slack Investor has a different, more researched, inspiration … he has fallen in love with an Australian statutory body – APRA is the Australian Prudential Regulation Authority.

Australia’s total superannuation assets rate of return – From APRA report

Oh APRA …. I do love you … You are the Ocean … it’s the indifference that you show me … the complete lack of spin … just information …. Oooohhh! you may have let us down in the distant past (HIH collapse, 2001), but your new muscular stance on differentiating between superannuation products is appealing … it gives me hope for all statutory bodies. One of APRA’s duties is to collect information on the superannuation sector and report. They report the total superannuation assets in Australia grew to $2.7 trillion in the year to June 2018. The Self Managed Super sector has a staggering 27.7% of these funds. Slack Investor is gladly part of this self managed sector and enjoys the flexibility of an SMSF. Last years average rate of return for all super funds was almost 8%.

The chart shows some great annualized Australian super returns for the past 5 -years of 7.9%

The Productivity Commissioner and Slack Investor hero Karen Chester argues that there is a need for the Super system to look after the default member who is likely to remain disengaged.

“what workers need is not “bells and whistles” – which bring with them higher fees – but “low-cost, top performers” with a “balanced investment strategy” Karen Chester From The Guardian

APRA continues to monitor performance of Industry vs Retail Funds and the yearly percentage advantage of having Industry funds(rather than Retail) is shown above.

While we wait for the politicians to act on these matters, get engaged and consolidate your super into one fund – and it should probably be an Industry fund. If Slack Investor can’t motivate you – then perhaps Oprah can … Right On Oprah!

“If you’re sitting around waiting on somebody to save you, to fix you, to even help you, you are wasting your time because only you have the power to take responsibility to move your life forward.” Oprah Winfrey – Source

Productivity Commission has Cunning Plan for Super

The Productivity Commission have a plan worthy of Blackadder – Image may be subject to copyright

The Draft Report of the Productivity Commission (PC) into superannuation was discussed last post. The report identifies four main problems with Australia’s superannuation model that adversely impact the final payout. Underperformance, Multiple Accounts; High fees; and Expensive insurance. Slack Investor will look at a couple of the recommendations of the PC.

Not all funds … is good funds!

The PC found that nearly 5 million accounts are in underperforming funds. They defined a low benchmark (BP2) which was the average performance of all MySuper accounts and the chart shows the cluster of purple retail funds at the in the poor returns of the bottom left (Plus a few laggard industry funds … Shame!)

The performance of a fund was found to be the most critical factor in determining your compulsory super payout. You could potentially save $375 000 by getting this right. The PC came up with a cunning plan to counteract the disengagement of younger members of the workforce. The Productivity Commission propose that the default super choice for when you first start work is one of the 10 best performing funds – Cunning but Brilliant!- You automatically get put into one of the historically best performing funds at a time when you are likely not that skilled in picking a fund yourself.

… members should be placed into a default fund once and that fund would be derived from a ‘best in show’ list of high‑performing funds identified by an independent and expert panel.

I would hope that all workers retain the right to eventually move to a fund of their choice – but it is a fine first step to put new workers into one of the funds with an established good record. To Slack Investor, this panel sounds like a cushy job – If my application to be Reserve Bank governator is rejected, I would be like to be on that panel!

One Super account for life …. How Bout that!

… one third of accounts, … are unintended multiple accounts that are costing members $2.6 million a year in fees and insurance premiums.

A structural fault with our current system is that new superannuation accounts are usually created with each new job or new union award – if you are not proactive it is easy to accumulate a handful of super funds before you are 30. The inefficiency of this structure just leaks money out of your retirement accounts in a myriad of fees that profit the funds .

What to do … Now!

In the meantime, not advice, but this is what I would do. Don’t wait for the PC final report … or the politicians … Get Engaged (Part 1, Part 2) and immediately get online and check on the performance stats of your current super fund(s). If you are more than 5 years from retirement, I would be in a high growth option of your super fund. You usually do have choice!

Look at the table below assembled from data on the most excellent site Selecting Super and compare it with your current fund performance. Those wanting a more interactive experience should try the Stockspot site. If your fund’s performance results look bad (i.e. 5-yr less than 10%; 10-yr less than 5.6%) then lose your love for that fund and move on!

In what can only be described as a blatant display of my skills to get on the “best in show” panel, I have made my own “best in show” list and ranked the growth super funds according to their 5-year performance. I have only included the funds that are open to everyone, and … in over-achieving style, have listed the top 20 … yes 20! Followers of Slack Investor will find it no surprise that Retail Funds did not perform well enough to be in the top 20.

Fund	1-year	3-year	5-year	7-year	10-year
Intrust Core Super – Growth	12.40%	9.00%	12.00%	10.00%	6.10%
VicSuper FutureSaver – Equity Growth	11.90%	8.30%	11.90%	7.10%
StatewideSuper – High Growth	11.50%	9.40%	11.70%
Cbus Industry Super – High Growth	11.60%	9.30%	11.60%	10.60%	7.00%
AustSafe Super Industry – Super Growth	13.40%	8.80%	11.60%	10.10%	6.20%
HOSTPLUS – Shares Plus	12.50%	9.50%	11.30%	10.00%	7.10%
AustralianSuper – High Growth	10.30%	8.50%	11.10%	9.90%	6.50%
LegalSuper – High Growth	10.50%	8.30%	11.10%	9.80%	6.00%
Prime Super (Prime Division) – Managed Growth	10.40%	9.50%	11.00%	9.50%	4.00%
Catholic Super – Aggressive	10.60%	8.90%	11.00%	9.90%	7.30%
Club Plus Industry Division – High Growth	13.00%	9.40%	10.80%	9.60%	5.90%
Rest Super – High Growth	9.60%	7.70%	10.80%	10.00%	7.30%
HOSTPLUS – Balanced	11.00%	8.70%	10.60%	9.70%	6.70%
CareSuper – Growth	9.90%	8.10%	10.60%	9.70%	7.20%
First State Super Employer – High Growth	10.80%	7.70%	10.60%	9.90%	7.10%
TWUSUPER – Equity Plus Option	10.30%	7.90%	10.50%	9.40%	5.90%
Energy Super – Growth	9.20%	8.10%	10.40%	9.40%	7.10%
Media Super – High Growth	9.80%	7.80%	10.40%	9.20%	6.20%
HESTA – Shares Plus	10.70%	7.70%	10.30%	9.40%	6.90%
MTAA Super – Growth	9.30%	8.20%	10.20%	8.00%	3.50%

Once you have made your choice, and opened up a fund that you are happy with (if required, contact fund and get account number first) now consolidate all accounts to your one favoured fund using My Gov ATO Portal. Let your employer know of your new choice for future contributions.

If you are 21, according to the Productivity Commission, you might have just saved yourself up to $426 000 in retirement funds. If you are 55, you could save $55 000. – Still, that’s not a bad days work!

May 2018 – End of Month Update … and the Productivity Commission creates new Hero

Slack Investor remains IN for US, UK and Australian index shares.

The Australian Index (+0.5%) has been a bit of a laggard with the banks still generating bad news and signs of the Australian property market starting to slow. The UK Index (+2.3%) and the US index (+2.2%) have continued to have solid growth.

The good news on the Australian Index (ASX 200) is the opportunity for Slack Investor to crinch up his stop loss from 5629 to 5724. A small movement upwards, but I always like doing this as it means that the Index has now set a new “higher low” The explanation for this technical stuff can be found here. A new “low” (or minimum) has been established at 5724 and this is my new stop loss on the monthly chart

Monthly chart for the ASX 200 – From Incredible Charts

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Productivity Commission gives the Super Industry a bit of a “Ginger Up”

I have been a fan of Australia’s Productivity Commission (PC) ever since I read their 2010 report into the sorry state of Gambling in Australia. The report is full of thought provoking and shameful material like- Australia is the world leader in number of poker (slot) machines per capita and Australia leads the world in gambling losses per person – but I digress…

The “Ginger Up” refers to an ancient horse racing practice that I wont elaborate on here – but it does make me squirm! The PC have just delivered their draft report on the state of Superannuation in Australia. God bless them .. they have put in “black and white” the rorts that exist in Australia’s good but not great superannuation system – and they have created a new Slack Investor hero.

The lead author in the report is the Productivity Commission deputy chair Karen Chester who has delighted Slack Investor with the following refreshing quote. Ms Chester’s attitude was like a snowball in the face after the my last depressing post on the mostly self interested world of banks and financial advisers.

Karen Chester – Photo from Quentin Jones

“the only thing I care about is member outcomes” from source

The Productivity Commission identifies two structural problems with Australia’s super model. The unintended creation of multiple accounts and the entrenched underperformance of some of the super funds that are allocated to the employee.

From Productivity Commission Superannuation report.

“Members are really lost in the weeds of product proliferation with 40,000 products. They’re bamboozled by poor disclosure and … poor advice.” Karen Chester from source

I am hoping that Ms Chester will get the final report out with haste. Slack Investor loves the smell of the draft report. The Federal Government would do well to take up her recommendations. The info graphic above puts some real world figures on what might happen if the PC recommended changes to Australia’s superannuation model are adopted.

It is a promising sign that the current Finance minister seems to recognize the problem.

“Super has become worse than a honey pot; it’s a trough.” – Financial Services Minister Kelly O’Dwyer source

Slack investor will look at the “trough” and PC draft recommendations in the next post. There are things you can do right now to protect your super.

The Royal Commission into Finance … Yes Please!

David Rowe cartoon From the Australian Financial Review – May be subject to Copyright

The incomparable David Rowe has a daily habit of drawing great cartoons. This image describes the current situation with the excrement covered big 4 Australian bank pigs dragging the Australian Treasurer and the Minister for Revenue and Financial Services along for the ride in front of the Royal Commission.

Lets start again with the astounding ASIC revelation

ASIC found that in 75% of the advice files reviewed the advisers did not demonstrate compliance with the duty to act in the best interests of their clients. Further, 10% of the advice reviewed was likely to leave the customer in a significantly worse financial position.

Lets get this straight … I rock up to to a financial planner and I only have a 1 in 4 chance to get some advice in my best interests …. and, I have a one in ten chance of ending up in a significantly worse situation … What is going on !!!! – these are the people who many depend upon for sound financial advice.

The sad case of Sam Henderson

Sam Henderson outside the Royal Commission from news.com.au

Slack Investor writes about Sam only because he is still gobsmacked with the evidence presented to the Royal Commission on 24/04/18.

A bit of background … Sam Henderson is the very public and enthusiastic face of Henderson Maxwell, a financial advice and accounting firm. Sam has been everywhere in the Australian financial media for the past few years with his own weekly TV show and newspaper columns. Slack Investor admits to being a great fan of Sam’s podcasts Sky News “Your Money Your Call” presented weekly on Thursdays. In these podcasts Sam, and others, dispense generally good advice about retirement issues and superannuation.

I have found their program to be extremely informative. They have talked a lot about Self Managed Super Funds (SMSF’s), retirement strategies and taxation – Advice that Slack Investor has found very helpful.

However, Sam has fallen foul of the Royal Commission. Henderson Maxwell charged $4950 up front to give advice to a client that would have been to her detriment – to the value of at least $500 000. It appears that Sam’s firm has acted in their own self interest rather than the clients. Specifically, Mr Henderson urged his client to establish a SMSF and remove her super investments from a generous public sector deferred benefit fund to invest in Henderson Maxwell products, which would have earned him ongoing fees.

The fees proposed by Sam Henderson’s advice would have annually amounted to $19,000 while the client’s existing strategy was costing her $2768.

Although, through this public shaming, Sam has carried a lot of the heat for the widespread malpractice by the banks and financial planners. This case represents the huge problem with the financial industry in Australia and the reason why Slack Investor has educated himself in the dark art of finance rather than rely on a financial advisor to dictate strategy for him.

One of the most galling things about this case is that Henderson Maxwell is considered to be one of the leading firms for giving financial advice. They are the winner of the 2016 Australian Association of Financial Advisers (AFA) award for practice of the year. The AFA advertise their advisers as “Trusted, Knowledgeable, Reputable, Respected”

Slack Investor admits to being a flawed human – but he would hope that he would act ethically even as the financial system drapes its lucrative reward tentacles tantalizingly in front of him. In the case before the Commission, Sam Henderson responded to financial incentive.

What is wrong with the Financial Advice Industry?

Charlie Munger -Source

“Show me the incentives and I will show you the outcome” –

Charlie is vice- Chairman of Berkshire Hathaway and dispenser of financial common sense – another Slack Investor Official Hero

This sums things up. At the moment most financial advisors are given incentives to sell their own products – there is no incentive to represent the best interests of their clients. The regulator ASIC has done a review of the quality of financial advice that had been provided to SMSF’s, and found that

90% of cases had failed to be in clients’ best interests.

It is hoped that the Royal Commission will accelerate change. The Financial Review reported that four years ago the head of the Financial Planning Association (FPA) called on financial planners to unite and push for the separation of product from advice. In the meantime, the vertically integrated financial planning money machine with its fees and trailing commissions has kept on rolling on …

The Hayne Train should address these issues before finally pulling up to the station – While we are waiting, if you really need a financial planner, only use a truly independent advisor registered with IFAAA – No affiliations with product, no commissions and no asset fees . There will be an upfront fee for the advisor’s service – but this fee should be small in comparison to the ongoing costs associated with the lifetime tenure of an affiliated advisor.

Fat Pigs and Fat Cats

From fithfath.com – The image is from the action rhyme “… this little piggy had roast beef” – but its such a great picture .. it’s in!

“… the farm had grown richer without making the animals themselves any richer — except, of course, for the pigs and the dogs.”

George Orwell – Animal farm (1945)

There is a bit of an animal theme in this post as Slack Investor pays tribute to George Orwell and his book Animal Farm. The “pigs and the dogs” have all the power in Orwell’s allegorical tale – and, with Australian’s paying $31 billion annually in super fees, there are plenty in the superannuation fund industry that are getting richer like the “pigs and the dogs”.

In common with most of the school essays that I wrote … after an interesting start, things start to fall apart … and I can’t stretch this narrative too much further. In Animal Farm, two of the leading pigs inspired the other animals to revolt against the humans … and, I cant see any of the retail super fund executives (who are benefiting from the status quo) getting us to demand lower fees – So it is up to us … Come on other animals … Let’s break out of our “profound disengagement” with our retirement savings and … Let’s revolt against these fees!

A good start would be to avoid most of the large institution owned retail funds (big banks, Macquarie, AMP) which creamed $12 Billion in super fund fees during 2016. While they were doing this, they delivered returns of 2 per cent less (pa) when compared to Industry super funds over 10 years. This under-performance, if continued, could cost $200,000 in retirement savings over a working lifetime.

So stand tall on your hindquarters all you downtrodden animals and firstly check where your current employer-paid super payments are going.

With few exceptions, you have a legal right to choose where your employer pays your superannuation contributions. If you formally notify your employer of your preferred fund, they must direct their employer contributions into the superannuation account of your choosing.

From Goodsuper.com.au

A recent survey by Stockspot “Fat Cats Fund Report 2017” looked at 4,102 Australian funds, sorted them into categories from Conservative to Aggressive then filtered them for relatively poor performance after fees over 1, 3 and 5-years. Stockspot calls these poor performers “Fat Cat” Funds.

At the other end of the scale, there are the “Fit Cats” with relative outperformance – these are the ones that you want! Stockspot found that fees were really important when measuring performance – if you are in a fund charging more than 1.5% per year, it is at high risk of becoming a Fat Cat Fund – to check how your fund rates according to Stockspot, go to this link.

A comparison of Retail Super funds and Industry Super funds – and how they fit into the Stockspot FatCats and Fair Cats rating system – From Stockspot.

So, as banged on about in a previous post, Industry funds generally have lower fees but Stockspot recommends looking further into the relative performance of each industry fund (after fees) over a period of at least 5 years as there is considerable variation in performance.

To flog a dead horse ( You will have to read Animal Farm to really get this pun … Sorry Boxer, Vale!) … and with apologies to George Orwell again …

Not all industry super funds are equal … some are more equal than others

August 2017 – End of Month Update … and Fund Returns FY2017

Slack Investor remains IN for US, UK, and Australian index shares.

A steady month for all markets that I follow – Slack Investor stays on the couch and does nothing …

The Chant West media release referred to in the previous monthly update has plenty of other useful information.

Fund Performance Results (Up to June 30, 2017)- Source Chant West

The above table quotes the median performance figures from various types of funds that Chant West monitors, ranging from All Growth to Conservative. As mentioned in a previous post, the 1-Yr column shows it has been a bumper year for all types of funds – If you owned any growth fund during the last 7 years, you would be tremendously pleased with the 10% pa returns.

The GFC (Global Financial Crisis) of 2008 (and later years) continues to weigh down the ten year returns (4-5% for growth assets).

Over the last 25 years, Chant West found the returns of growth funds were a more reassuring 8.3%. It just drives home the devastating affect of a major downturn that an event like the GFC has on growth funds. The figures are, in the jargon of the industry,”net of investment fees and taxes” … but curiously before admin fees and advisor commissions … but this is another story!

Growth Funds – Rolling 5-Year Performance (Returns %pa) – Source Chant West

The above graph compares the growth category median (rolling 5-year) with the average return objective for growth funds – CPI (Consumer Price Index) plus 3.5%. This is a typical target for growth funds. In an environment where cash returns are mostly below 2% there is risk involved with investing in growth assets.

I never ever ever thought I would be quoting the far-right (recently) former Trump employee on this site.

“My old firm, Goldman Sachs – traditionally, the best banks are leveraged 8:1. When we had the financial crisis in 2008, the investment banks were leveraged 35:1.”
― Steve Bannon, Media Executive and former Investment Banker source

However, “Breitbart Steve”, after the fact, your quote rings true … the signs are always there … Excessive borrowings (leveraging) and a willingness for people to pay top dollar for overvalued assets are sure signs that trouble is coming.

Slack Investor is comfortable with risk and would always prefer growth funds – especially with a large time horizon – but I will never be able to avoid ordinary fluctuations (corrections) in the stock market. A disciplined approach to stop losses should keep me out of the huge falls that the GFC presented to owners of shares.

Although valuations are generally high, Slack Investor does not see a bubble in the Australian or UK Stock Markets for now – Unlike the US market, Australian and UK share valuations are not too far higher than long term averages – and there has never been a calamitous fall in stock values without a bubble first. Regardless, my stop losses will protect me from huge losses of capital.

I have updated all Index pages and charts to reflect the end of month data.

July 2017 – End of Month Update … and Long Term Returns!

Slack Investor remains IN for US, UK, and Australian index shares.

A steady month for the ASX and gains for the UK market (0.7%) and the US Market (2.3%) – It must be the “Mooch” Effect. I am sad to see him go … In a circus you need heaps of clowns!

Chant West are a superannuation consultancy and research firm that release a trove of data on how superannuation is rolling along in Australia. The have excelled themselves in a very timely media release. outlining that this is the 8th financial year in a row of median gains for Australian Super “Growth” funds. They define growth funds as funds that invest 60-80% of their investments in growth assets such as shares and property. Their results for the past 25 years for Australian Super Funds is presented below.

Median Australian Growth Super Financial Year Returns (%) – net of fees and taxes – from Chant West

Despite the worries of the world, this last financial year, the median of Australian growth funds achieved a 10.7% return and some of the low fee funds discussed in the last post, such as HostPlus and Sunsuper achieved FY17 returns of 13.2% and 12.4% respectively in a year where the safety of cash could only yield 1.8%.

The five-year period up till now have been boom times for the share market. There will be high fives and bonuses all round for the suits that control your funds. This has been a good investing year and you should rejoice at the returns shown in your super statements when they are sent to you soon – and reflect upon the pitiful returns that you would have got if you had your super invested in a bank account.

But, it is a good reminder that not all years represent gravy for growth funds and it is the nature of these assets that their will be some yearly fluctuations. Slack Investor’s feeble memory is strong on the returns of the years 2008 and 2009 where the Global Financial Crisis caused asset prices and market returns to crash. I can remember many who lamented that this compulsory super business was a costly rort – it was tough to watch your retirement savings shrink even though money was taken out of your wages each week.

Slack Investor has a soft spot for the bard

“Ay, to the proof, as mountains are for winds, that shakes not, though they blow perpetually.” ― William Shakespeare, The Taming of the Shrew

So “shake not” dear investors … think long term and think growth … and despite the occasional disappointment … you will be rewarded! Compound interest will be doing its work on your savings in all those years that are blue in the above image – It is only fair that you have got to give compound interest the occasional year off – for recuperation!

I have updated all Index pages and charts to reflect the end of month data. .

Spaceship … Let Me Out Here!

Hey you Millennial dudes and hipsters… Suh!

Space … sounds good … its so snatched! … Spaceship … even better. Come on … lets get on board. Superannuation is so boring … but Spaceship .. Its so now – isn’t Elon Musk working on one?

What Slack Investor is referring to is the reach out to the younger crowd of cool new investor products that will look after your superannuation in a really cool way. Spaceship, is just one of the new breed of disruptors (e.g, Zuper, MobiSuper, Grow Super) that is encouraging you to put your super investments into a high tech sounding enterprise that focuses on new technology companies. It seems that their marketing push has been successful with at least $100 million in funds under management for Spaceship.

Now, Slack Investor has a soft spot for disruptors that make use of new technology to help the investor work more efficiently through lower costs and new platforms. However, Spaceship and their ilk are not, so far, disruptors. They are just a repackaging of the same old greedy financial industry that are trying to separate the investor from their hard earned loot.

We had a look at the critical importance of fees in investment in an earlier articles here and here. Despite the marketing fluff, Slack Investor is getting off the couch and drilling down. A highly recommended process before you part with your money to anyone. Spaceship fees are 1.6% plus administration, MobiSuper fees 1.5% plus admin fees, Grow Super fees are 1.85%! Fees are critical to investment returns.

The same drilling down process can be done in the USA with Individual Retirement Accounts (IRA) or employer sponsored 401(k) plans. Google is your friend – Long term performance and Fees Fees Fees is what you are looking for. A good articles for the USA on fee impact can be found here, And for the UK here.

The Australian Securities and investment commission (ASIC) says

A 1 % difference in fees can lead to a 20 per cent difference in the value of a superannuation benefit over 30 years.

From Hostplus – Money Magazine Best of Best 2017

The above table shows some existing funds that have established long-term returns and with a fee structure less than 0.5% for $50000 invested.

So get out of the spaceship … and relish life on planet Earth with some low cost super funds … they are so “On Fleek” as far as your money is concerned.

Superannuation … Engage! – Part 2

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.