A closer look at your super

Christine St Anne  |  31/01/2013Text size  Decrease  Increase  |  
Christine St Anne: With the government sector increase the superannuation guarantee further, super as an investment will only get bigger. Today, I'm joined by Morningstar's Darren Cunneen, to tell us how to better understand a super. Darren, welcome.  

Darren Cunneen: Thanks for having me Christine.

St Anne: Darren to begin with, in your report you first look at risk tolerance. How does this risk differ according to a person's circumstances?

Cunneen: Christine, the objective here is to align your risk tolerance with your personal circumstances and your objective. So when we look at risk, we can basically dissect it into two different components. We can look at your ability to take on risk and your willingness to take on risk. So your ability to take on risk is it's more tangible, it's more objective, it's based on hard facts. So, say for example, the wealthy you are, the more risk you can take on; the younger you are, the more risk you can take on, and then when we're looking at our willingness to take on risk, it's more subjective, and it's more psychological.

So, if you are uncomfortable taking on risk then you may want to lean towards the more conservative option. So, you take these two components and you marry them together and you come up with your risk tolerance.

So, the greater your risk tolerance, the more your portfolio or greater the proportion of your portfolio should he held in growth assets, such as shares and listed property, and the lower your  risk tolerance than the greater the proportion of  your portfolio should be held in defensive assets, like cash and fixed interest.

St Anne: Darren, you mentioned the conservative investment option. So what are the investment options are offered by super funds?

Cunneen: Well, there are myriad of options out there and it's important to shop around and we shop around for everything else, so why not for super fund. You shouldn't just opt for your employers default option. There are range of options out there, ranging from your very conservative strategies, which go up the risk spectrum to your more aggressive growth-heavy strategies. Now, as we mentioned before you need to match your risk tolerance with your super option. So, if you have a higher risk tolerance then you want to be higher up that risk spectrum into more growth heavy assets.

Now, it's also important before diving in to know that naming convention for lot of super funds can be quite misleading. In fact, a lot of super funds out there with the term balanced in their name actually fall into Morningstar's growth or even into their aggressive categories.

St. Anne: Moving beyond investments Darren, what about fees. Could you give us an insight into what the key things that people should look at?

Cunneen: Sure. Well, as with all mutual funds the fees are quite important. High fees will drag in your returns and they will ultimately act as a headwind to achieving your retirement goal. For your super funds, you should factor in all types of fees and these can include your investment fee, your membership fee and your management fee.

St. Anne: Finally, Darren, super is quite long-term and for many people it seems to be a set and forget strategy. Is this approach feasible?

Cunneen: Certainly not. Your super fund is obviously it's a long-term investment. But just because you are young and your retirement is long way off, doesn't mean it's a set and forget strategy. You should obviously review your super as personal circumstances change, such as your wealth, your income or even just your age or even your time to retirement. So, it's important to take an active interest in your super now. It can make a big difference down the line and it can increase the chances of having a happy and comfortable retirement.

St. Anne: Darren thanks so much for your insights today.

Cunneen: Thank you for having me, Christine.

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