How Do You Invest Super?

• 

  mskeggs on 16/06/2016 - 18:43

  +12

  Simple advice:
  To do:

  • choose an industry fund. They have some drawbacks, but are not for profit, and this has meant lower fees and better returns to members.
  • choose a high growth investment option within your fund. These will put your money into risky investments that pay off big. Since you have so long till retirement, you can afford a few losses along the way and keeping in the high growth mode will get the best returns when things go well.
  • as you change employers make sure you keep track of your super. This is easy these days as you can just tell the new employer to use your chosen fund.
  • forget about it. Once you have done the above, you really don't have to think about super again for 10 or 20 years. It will just tick along growing your balance. When you hit your 40s you might want to reassess.

  Do nots:

  • don't add any extra to super until you are older. It is money you can invest elsewhere now and the super rules may change unfavourably.
  • don't watch your balance religiously. If you do, you will be tempted to change investments or funds, which is a recipe for poor market timing (e.g. selling shares when they crash)
  • 

    kipps on 16/06/2016 - 21:29

    mskeggs has it right 100%.

    http://rogermontgomery.com/dear-under-50-investor/ is a fantastic article for why us younger generation shouldn't be thinking super will pay off for us. Those filthy politicians can't help but continue to tax it more and more.

    • 

      eclaw on 18/06/2016 - 14:26

      A lot of this makes sense.

      But there is still an argument to put the tiniest bit into your super.
      As one reader mentioned in that blog:

      "As a 31 year old, I take a lot of interest in this subject. The hard part I am coming to grips with is this:

      If I put a $100 salary sacrificed into super, after the contributions tax of 15% I have $85 to invest.

      If I don’t salary sacrifice that $100 and pay it out into my net pay, it comes out as $63 after taking out 37c in every dollar in personal income tax.

      If am correct, $85 vs $63 means that any investments from my net pay need to outperform salary sacrificed super by 35% to get even . That is a huge margin to make up. This is why I find it hard not to invest in super."

      To put that into perspective, if your investment outside of super manages to generate an extra 2% more than what your super can consistently (which happens but definitely not possible for all investors); it will still take 15-18 years just to break even with the initial amount investment. (keeping in mind super earnings are taxed less than outside investments)

      Another way of looking at things as well - if you are putting in say 1% salary sacrifice when you're 18 and keep that running, that 1 % will be equivalent to roughly 2% when you hit your late 20s (if you play catch up then) and then roughly 4% in your 30s and doubling every 10 years or so.
      The main uncertainty is our government, and the argument is that things will only get worse which is a valid point.

      However, we have no way of determining when things will get worse or if it will even get that bad for middle income earners.

      I guess what I am really trying to put out is that one can always use a scaled approach to salary sacrificing - start small (1-5%) when you're in your 20s to take advantage of that tax break and its a small enough amount to not really derail you from saving for other goals and then hike it over time as you see fit (being your retirement goal and how our government might screw things up)

• 

  [Deactivated] on 16/06/2016 - 18:47

  Good initiative. I've got my super in a fund that's externally managed by the company I work for (investment advisory)

  But as far as managing yourself there are SMSF's but you need plenty of super in that it or else gets eaten up by fees and theres compliance requirements/costs.

  I'm sure others could shed some light on other options in more detail.

• 

  bobbified on 16/06/2016 - 18:53

  Everyone that actively invests has their own risk profile. Planners use a quiz to determine how comfortable you are with the risks of investment.

  Eg. Some people are comfortable with higher risk to aim for a higher return and some people will prefer minimal risk but are happy to accept a lower return on their investment. Of course, these are opposite ends of the scale and there are in-betweens.

  There's a strong correlation between Risk vs Return and you'll need to determine whereabouts on the scale you yourself sit in.

  Then you can work out what the asset type/class that you're investing in.

  If in doubt, speak to a financial planner - most of the super companies allow a free initial consultation with a financial planner - this should be helpful given that your situation is still relatively at the moment so some basic advice from them will help you a lot.

• 

  Cheeper on 16/06/2016 - 19:33

  For an all round worthwhile fund go with Australian Super. Opt for at least 50% or more in property and you should fare better than most other funds.
  Don't be guided by just returns, fees and misc charges of some funds can erode your gains very fast.

• 

  Caped Baldy on 16/06/2016 - 22:34

  +1

  High risk/reward and no insurance. The default is set up for insurances such as death and injury which is unlikely depending on the type of work you do. I regret not checking sooner.

  • 

    7hours 44min ago on 18/06/2016 - 07:30

    +1

    Can't believe it took so long for insurance to be brought up.

    OP, if you have no wife or kids you don't need death cover. Your death payout should only be there to get rid of debt for people relying on your income; and possibly a bit more for school or uni fees.

    Consider income protection but it's a far better strategy to budget well and create a rainy day slush fund you can use if you can't work.

    mskeggs had it right with the high risk strategy. I'd put in extra only if you get govt co contribution; if you will earn too much to not be eligible, don't bother.

    • 

      His_Holiness on 18/06/2016 - 09:28

      Your HELP debt is cancelled when you die. Don't even need insurance for that.

      • 

        7hours 44min ago on 18/06/2016 - 12:14

        I meant your kids' fees.