Every month or two the media reports the latest returns from Australia’s largest super funds. You may look at your member statement (which provides a summary of your benefits) from your own fund and wonder why the returns being paid into your account don’t reflect the returns announced in the papers — your account may earn a higher return, or a lower return.
The returns quoted in the newspapers are ordinarily for a fund portfolio called the balanced investment option. A balanced investment option usually has 70 per cent or more of the portfolio’s assets invested in assets such as shares, property and alternative investments. Although most super fund members have their super money invested in a balanced option, you may be one of the growing numbers of super fund members who exercise investment choice.
More than 80 per cent of superannuation funds offer investment choice, which ordinarily means they offer fund members the choice of various portfolios (a combination of several assets) rather than the choice of specific investments. For example, you may have the choice between conservative, balanced and growth portfolios. Some funds give you the opportunity to invest part or all of your superannuation money in one or more specific asset classes, such as international shares or property.
Around 80% of fund members have their super invested in the default option. The default option, which is usually a balanced option, is used when members don’t exercise investment choice. A balanced investment option normally has 70% cent or more of the portfolio’s assets invested in assets such as shares, property and alternative investments.
If your super fund doesn’t appear in any of the tables it doesn’t necessarily mean you’re a member of a dud fund. If you choose your own investment options, then you need to compare the performance of your chosen investment options against similar options in other funds, rather than the performance quoted for the default option.
You may have the opportunity to invest in options that invest in only one asset class, for example, Australian equities or international equities, or options that invest in alternative investments, such as private equity. Retail super funds usually offer the greatest range of investment options.
Choosing a conservative investment option generally means a lower return than a more aggressive option. Although a riskier investment option may deliver higher returns, you can sometimes end up with a negative return too.
TIP: The Australian and Securities Investments Commission (ASIC) has produced a table, which is updated every six months, giving you the average returns that super fund member accounts have received over five years and over ten years, across four investment options. You can find the table on ASIC’s consumer website, FIDO (www.fido.gov.au/super).
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[...] Consider your investment options within the fund. The majority of fund members have their super money invested via a ‘balanced’ investment option which is designed for the average fund member with 10 or more years to retirement. I explain some of the issues involved when comparing a super fund’s performance in the article Comparing your super fund’s performance. [...]