Get to know your super
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Darren Cunneen is a fund research analyst with Morningstar.
Whether you're an investment enthusiast or you prefer to observe the fast-moving financial markets from the sidelines, if you're making regular contributions to a superannuation fund, this makes you an involved investor - you've got skin in the game.
Taking a passive approach to this investment may be the easy option, but getting more actively involved now could have a significant impact on the quality of your retirement lifestyle. Here are some simple tips to help you take control of your super.
An easy first step is to assess your personal circumstances. Age, risk preference, and retirement goals are the key criteria. The objective here is to decide on the best mix of assets that matches your current profile.
For the most part, a longer time to retirement, a greater risk tolerance, and a greater sum of money required at retirement indicate the need to have a greater proportion of your superannuation portfolio in growth assets, and vice versa.
Growth assets, such as shares and listed property, are generally riskier, while defensive assets, like cash and fixed income, are less risky. However, it's the growth assets which offer the greatest prospect of long-term capital growth. The normal rule of thumb is that the more growth assets in your super, the greater the likelihood of growing your money over the longer term.
Next, do your homework on the options available to you. Shop around - don't just opt for your employer's default strategy. Although the myriad of offerings available can be bewildering, picking a suitable super fund can mean a more comfortable retirement, while selecting an inappropriate one may mean a less comfortable one.
Be aware before diving in, though, that many superannuation funds' naming conventions can be misleading - many super funds have a much more significant exposure to growth assets, and are consequently riskier, than their names imply.
A number of so-called "balanced" funds fall into our multi-sector growth or aggressive categories, for example, because of their comparatively high growth asset allocations. That's why it's important to look beyond the label and examine the underlying asset class breakdown, which you can do in the fund profiles on this website.
Fees, in particular, are vital. High fees drag on returns, and can ultimately act as a headwind to achieving retirement goals. Account for all fees - management fees, account-based membership fees, investment fees, and so forth, when making comparisons.
Having historically offered lower headline management fees, industry superannuation funds have often had an apparent edge over their retail counterparts on costs. While important, this is only one of a number of areas to assess, others being the robustness of the investment process, the quality of the investment personnel, and long-term investment performance relative to peers.
Some superannuation funds also offer auxiliary benefits such as life insurance, which can make a fund more attractive than its rivals.
While managing your super has always been important, the gradual increase in the legally-mandated superannuation guarantee charge from 9 to 12 per cent of earnings over a six-year period starting from 1 July 2013 makes this more important than ever.
Every contributing Australian will have more capital at stake in their superannuation than before.