Paul Clitheroe answers your questions about super
Ask Paul: Why is my super losing money every week?
Hi Paul,
I've got my money in super. Last year gave me great returns, but this year it's another story.
The sharemarket has been going from strength to strength but I'm still losing money just about every week. What could be the reason for this? - Sal
Last year was just a super year for super, Sal. Excuse the poor dad joke, but it did turn out to be a ripper.
We have short memories, though. All our super got smashed in March 2021, but values recovered so quickly we all forgot about that!
I've been around money and super for what feels like longer than when the dinosaurs roamed.
An advantage of this is that I am well aware that assets, such as shares, property, fixed interest, infrastructure and private equity - which will all be in just about any balanced or growth-style fund, have wild returns in any one year.
I've watched shares fall by more than 60% in a few months, and boom more than 60% in a year. I've seen plenty of property busts and investment failures.
What I think matters for you, me and most of us in super is long-term returns. In the 30 years or so of compulsory super, a decent, low-cost, well-diversified, balanced type fund has earnt around 8% to 9% a year on average.
And this is the key: long term and on average. Neither you nor I have the first clue what will happen to investments in a year or even three.
But in the long term, history is on our side.
Frankly, I would not get too excited in good years or bad. Let time work for you.
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Ask Paul: I only have $16k in super after migrating from Brazil
I'm 38, married and have a two-year-old daughter. My husband and I are Brazilian.
We migrated to Australia in 2015 and built a life here. I've always been quite naive when it comes to money, but now I realise that I need to save money and boost my super for retirement.
I have $16,000 in my super fund - not much, I know.
What is the best investment option to get a good return in 20 years? And what kind of investment could I make for my daughter's future? - Ana
Firstly, Ana, I am pleased you have built a life here. It is never a simple task to move to the other side of the world and start again.
The good news is that at age 38, you have ample time to build assets for your future.
Super is a terrific way of doing this. What I would like you to do is to take a close look at your current super fund.
Examine its performance over the medium to longer term and make sure it compares well with other large funds. Then check the fees - they should be low.
Also look at any insurance cover you have in your fund to ensure you have the amount you want.
With 20-plus years to build super, I would choose a growth option. This will be mainly shares and assets such as property and global infrastructure.
This is a higher-risk option than a balanced fund, but the best way to offset risk is time.
At your age you have plenty of time to let investment markets work for you. Do expect to have some years where your investment goes backwards, but over time risk should deliver you higher returns.
With your daughter, you could just buy a different share for her each year or use an exchange traded fund and add to it each year.
Also, most investment managers offer a diversified fund that you could add to.
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Ask Paul: I'm 74 - should I change super funds?
Dear Paul,
I have been with First State Super for 35 years and it is now called Aware. I am 74 and thinking of retiring.
I would like to take your advice and sit in a low-cost super fund. Can you advise if AustraliaSuper is a better fund? - Anna
Anna, "better" is a difficult description when comparing a fund like Aware to a fund like AustralianSuper. Both have performed very well for their members. AustralianSuper has won many awards from Money and Aware was the Best Super Fund for 2022 in Money's Best of the Best awards.
Looking at long-term results, both funds have done a great job. It depends on which option you choose, but if we look at their balanced fund returns or growth returns, both have performed very well.
Frankly, with these huge funds, the reality is they invest in a very similar way in very similar assets. When you are looking after hundreds of billions of dollars, there is a pretty straightforward strategy.
They seek to own quality assets globally. This would include shares, bonds, fixed interest, property, infrastructure and so on.
Whether you go with AustralianSuper or stick with Aware is not really the key issue.
It is most important to choose the investment option that suits you best. Over the long term, a growth option should outperform a balanced option and conservative option should be lower.
This makes sense as risk is highest in growth and lowest in conservative. I'm 66 and my super is in a mix of balanced and growth. I hope to be around for a couple of decades, making me a long-term investor, so the long-term assets in growth and balanced options suit me best.
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Ask Paul: My wife doesn't have any super, should I give her some of mine?
My wife and I are retired, in our 60s. Our super is in a leading industry fund, but in my name only. I have asked for this to be placed in both my name and my wife's, and was told that this wasn't possible.
We recently sold an investment property that was in my name only and have a substantial amount to invest.
My wife hasn't any super but has $200,000 in the bank, which is not getting much interest.
I could place property money in my super account, but my wife is hesitant with this as it isn't in her name.
We could put it in the bank, but it would get little return at present.
Am I better withdrawing my super and putting it into another super account in both names, and something else? What are my options? - Chris
Very good question, Chris.
Even in the longest of relationships, it makes a lot of sense for both people to have access to funds and for money to be held across both names. There are a lot of complex issues here, such as "what happens to me if you die or become incapacitated?"
The reality is that I cannot give you anything more than general information. I'd need a couple of hours with you to understand your goals and objectives, tax position, exact ages and so on before anything definite can be said.
But let me have a crack at relevant information for you both.
The solution depends on your attitudes and tax position. But you could easily invest in your wife's name in a managed fund or exchange traded fund outside super that holds the same assets as any good super fund. That would give you both a similar portfolio of assets - yours in super, your wife's outside super.
Please do call your fund to discuss this, but if your wife is under 67, she can, with limits, invest in super in her name.
Also, in the May 2021 federal budget, the government announced it would repeal the super rules that required people aged 67 and 75 to meet the work test if they wished to make super contributions. This is not yet law.
I really do not see the logic in you withdrawing from your super to invest in both names.
If your wife is under 67, I would think using your cash from the sale of the property to open a super account for her should be looked at.
Also, ask your fund about the potential changes to the law and when this may pass, to allow people to put money in super up to age 75 without a requirement to work.
Finally, as I mentioned, investing in a fund outside super, but with a similar mix of assets in your wife's name, could be a viable option. You are talking about big decisions here and a lot of money.
So talk to your fund - it is likely to be able to refer you to an adviser who would, I believe, be most valuable.
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Ask Paul: Our adviser is charging us $9000 a year to manage our super
Dear Paul,
We are in our early 60s.
Our super is invested with MLC through our adviser, who charges 1.1%. This year our combined fees totalled $9000.
SuperRatings recently rated several industry funds well above MLC in performance.
I'm wondering if we would be better off switching to an industry fund, which would charge a much smaller fee and have that $9000 in our fund instead of in our adviser's pocket? - Graham
Goodness, Graham. I hope you are getting more than just someone looking at your statement twice a year!
$9000 buys a lot of professional advice; in fact, even at a very handsome $350 a hour, it should cover 25 hours of professional advice a year.
Before I leap in too harshly here, though, it is important that you do consider exactly what services beyond super, including professional advice, you are getting. It is all about value for money.
Most of the big funds have low-cost, balanced or other options based on indexing, meaning the fund captures whatever returns the markets generate. The annual costs on these are as low as 0.05% - yes, on an investment of $500,000 that is around $250 a year.
So, if you are paying 1.1% a year, you would want to be sure you are getting returns and other services that reflect the fees you are paying.
Here it is important I tell you that my employer from 1983 to 2018, ipac Securities, put employer contributions into a high-growth MLC fund.
I do not pay an adviser any fees, but the MLC fund obviously charges fees. It is very much dependent on which fund you are in with any manager, but the fund I am in has performed strongly, which has justified its fees.
That said, I am a strong supporter of using a big, low-cost industry fund with its huge, broadly diversified portfolio.
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