Super for beginners, part 20: Comparing your super fund’s performance

Q: The investment return on my super fund account doesn’t seem to compare with the investment returns that I read about in the newspapers. Are the newspapers wrong, or am I in a rubbish super fund?

A: Every month or two (or more recently, every week it seems) 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 60% or more of the portfolio’s assets invested in assets such as shares and listed property investments, and alternative investments. Although most super fund members have their super money invested in a balanced option (it may also be described as a ‘growth’ 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, growth and high growth portfolios. Some super funds give you 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.

Although investment choice is available, most super funds do not choose an investment option for their super account. Around 80% of fund members have their super invested in the default option. The default option is used when members don’t exercise investment choice. The default investment option is usually a ‘balanced’ investment option (60% or more of assets in growth-style assets such as shares, property and alternative assets).

If your super fund doesn’t appear in any of the performance tables (see related article links at the end of this article) 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.

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.