We talk about Super a lot when it comes to tax planning and wealth creation, but you certainly want to make sure you've got the right vehicle for the job. If you get the selection right, you'll have many happy years of investment returns ticking away in the background.
If, on the other hand, you get it wrong, you'll literally see thousands of dollars pass you by over the lifetime of your fund. Here are a few things you need to be aware of:
1. Understand the different types of funds available. These fall into three broad categories:
Industry Super funds (including government funds) - In a nutshell, Industry Super Funds are generally lower cost options with a reasonable amount of investment choice. They would appeal to the investor who has a low level of complexity, doesn't what much involvement with their super, and is after lower fees. Where these types of funds won't suit is if your situation is more complex, or if you're wanting a higher degree of control and transparency over the underlying investments you're holding. Our opinion is that these funds are ok for many people in the accumulation phase, but they are less than optimal when it comes to drawing a pension.
Retail super funds - Retail Super Funds come with a higher level of control as well as transparency, meaning you can see what you're invested in most of the time. These funds are often administered through a specific super fund company, many of which are owned by banks or investment companies. This type of fund would appeal to those who like more involvement with their super funds, but who don't need the complexity of an SMSF. The fees can sometimes be higher than an industry fund, so the returns also need to be higher for this to be the best option.
Self Managed Super Funds (SMSF's) - An SMSF is the most complex type of super fund available but they still operate under exactly the same super legislation as the other fund options. The pros of this fund are ultimate control and transparency as well as some additional investment options (such as investment properties).
The cons come in the form of annual tax returns and audits that need to be completed, as well as a possible time commitment to managing the fund. We'd suggest a starting balance of at least $200,000 to make this option worthwhile.
2. Look at the investment options, fees, and performance
When it comes to investment options, these will vary greatly depending on the type of fund you have. But take the time to research what's available and most importantly, consider the asset allocation of your investments. If you're still a long way from being able to access your super, make use of a higher risk option so you can get your returns up over time. Also look at the fees you're being charged and consider if these are value for money. You'll likely encounter administration fees and investment fees, but the ones you really want to avoid are contribution fees or performance fees – these are a gouge. There's also a lot of information online about the relative performance of your super investments and it certainly pays to check this out. If you're after a comparison as to what your fund should have earned, just let us know and we can provide this.
3. Insurances – don't forget these
Lastly, don't forget your insurances. You may automatically have some of these issued in a super fund and many of these insurances are quite a low cost. Weigh up what you think you might need versus what you have in your super funds before you go and change funds quickly – you may just lose the cheapest insurance you had by doing so.
This is a short summary of some considerations for your super funds, but please let us know if you need help in this area. Super is a vital part of your wealth creation journey and it pays to get it right.