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In control: sizing up your super choices

Taking charge of your superannuation investments doesn’t necessarily mean running your own fund.

Setting up a self-managed superannuation fund (SMSF) can be an appealing option for those looking for more control and flexibility over how their retirement savings are invested. The number of SMSFs continues to grow every year with almost 600,000 SMSFs now managing more than $696 billion, according to the latest figures.

An SMSF isn’t for everyone though. If you’re worried about the extra expense, risk and administration involved in running your own SMSF, there’s another option: taking better advantage of your current super fund. The problem is, there’s evidence a lot of people aren’t aware that this is possible.

Different studies show that a substantial number of Australians either don’t know how much money they have in superannuation1, or have failed to consolidate their super accounts2. So it’s logical to assume that many Australian retail or industry super fund members leave their retirement savings in their fund’s default investment option, and don’t realise the different investment choices they have available.

Justin Chandler of Chandler Private Wealth says younger investors tend not to take much interest in their super accounts.

“But as they get older and the account builds up to several hundred thousand dollars, they think, ‘This is my money and I want to work out where it’s invested, what it’s doing and how much I’m paying in fees’,” he says.

Taking more control

“That’s probably the main reason people want to set up SMSFs – they feel like they can control the exact investments or buy some property,” says Chandler.

That being said, depending on the needs of the member, retail and industry super funds can also provide a substantial level of control.

With hundreds of different managed funds available, covering a range of sectors and assets classes, as well as access to shares and even bank term deposits, there are plenty of investment choices in super funds, says Ryan Pickles, Director and Certified Financial Planner at Hamilton Morello.

In fact, it’s wise to check whether you need to move out of the default option and take action to make sure you’re not losing out in the long term, says Pickles, citing the case of a recent client.

“I saw a lady who’d just retired. She was in her fund’s default option, which was 85 per cent in growth [higher risk] and 15 per cent in defensive assets [lower risk]. But it was evident she and her partner were completely risk averse. They didn’t need to take extra risk anyway because her partner had a substantial super balance.

“So, we reduced her growth assets from 85 per cent down to about 10-15 per cent and she still met her goals,” says Pickles.

It can be hard to filter hundreds of different investment options and consider the different level of risk for each. That’s where a financial adviser can help.

More responsibility

Taking control of your super investments obviously comes with more responsibility. If you’re making your own investment decisions you’ll want to weigh up your needs and the options offered by your fund. That means considering how much longer you’ll be working, the retirement income you’d be happy with and how much risk you’re prepared to take.

Next, you’ll want to investigate the types and styles of investments offered by your fund that might fit into your plan and appetite for risk. Chandler says diversifying investments to provide a mix of easily accessible or liquid assets (depending on how close you are to retirement) and growth is recommended.

A financial adviser might be useful at this point to help understand your risk profile and how that relates to the different options available, says Pickles.

“It can be hard to filter hundreds of different investment options and consider the different level of risk for each. That’s where a financial adviser can help,” he says.

Buy and sell as you please

Your super account balance is yours to invest as you please and you can buy and sell different assets at will, although both Pickles and Chandler caution that too much activity may come at a cost.

“You can change daily but obviously you’re paying extra in transaction costs for buying and selling so I wouldn’t recommend doing that,” says Chandler.

“But people often move to more defensive investments – more cash, fixed interest and term deposit assets – the closer they get to retirement. Until then, we generally recommend they keep quite a healthy exposure to investments that will grow, because people retiring now have to make their money last a lot longer than perhaps they did 10 to 20 years ago because people are living longer,” he says.

So if you’re not planning to retire for more than five years, the point is to focus on what your super is likely to be worth in the future, says the Australian Securities and Investments Commission MoneySmart website3. “It doesn't matter what it is worth from day to day, in the same way that the value of your home doesn't matter from day to day. It only matters when you sell your house, or, in this case, take out your super.”

Whether you decide your fund’s default option is best for you or you decide to build your own portfolio, the bottom line is to be informed and to take some action. And, if you choose to seek advice from a qualified financial adviser, you can find one here.

Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues interests in products made available under FirstChoice Investments and FirstChoice Wholesale Investments. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from or by calling us on 13 13 36.