When you think of the term ‘balanced’, what comes to mind? Personally, I think of 50/50 or equal on both sides, but when it comes to super, balanced may not mean what you think, here's why: If your super benefits are invested in the ‘balanced’ option, chances are your investments may not have a ‘balanced’ proportion of growth and defensive assets
If your super benefits are invested in the ‘balanced’ option, chances are your investments may not have a ‘balanced’ proportion of growth. Growth assets can include Australian and international shares and property, and defensive assets can include cash and fixed interest.
Each year the industry reports on the country’s top-performing superannuation funds. Rather than celebrating and comparing which fund reports the highest return, it is far more important that super members like yourself understand where you are invested in and if you are comfortable with this. By definition, when investing you have to take on more risk to generate a higher return and therefore the super funds with the highest returns presumably have taken more risk. Risk isn’t a bad thing, to enable your funds to grow in line with inflation (ie. the cost of living), you need to take on some risk. It is very important for people to ensure what they are invested in is appropriate for their needs and what they want to achieve.
I’ve taken a closer look at 3 of Australia’s largest superannuation fund’s ‘balanced’ investment options. The following table is based on information at the time of writing.
|Australian Super||REST Super||SunSuper|
As you can see, each ‘balanced’ option illustrates a different proportion of growth and defensive type assets.
It is quite surprising that the term ‘balanced’ was never reviewed during the Royal Commission in relation to investment portfolios within the superannuation industry. The above shows there isn’t a standard approach to classifying what is balanced.
The direct result is that you cannot compare the returns achieved across funds as they are not the same on a risk-adjusted basis and more importantly it is confusing for everyday people to understand exactly how their hard-earned money is being invested.
As a financial adviser, my understanding of balance in relation to long-term investing is having a good mix of both growth and defensive assets.
In my experience, those with a 50/50 mix of investments are looking more for capital preservation and generating a return in a more risk-conscious manner.
Depending on your life stage and financial goals, this may or may not be what you are looking for. The next time you are seeking out the next top-performing super fund, I encourage you to dig a little deeper and understand what risk is being taken on to generate that return. Or better still check in with one of the Advisers at Hewison Private Wealth.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.