When it comes to money, what’s most important to us changes over time. When we’re younger, and starting a family, perhaps taking out a mortgage, life insurance is the most important thing. When we get to midlife, super contributions become more important, loading money into super and taking advantage of the mathematics of compound interest.
But when we come to retirement, investment returns become most important. That’s because the period around retirement is when our super balances are at their highest. It’s what finance nerds call the ‘portfolio size effect’.
Think about it. When we are starting out in our careers, our super balance is low. A ten per cent return on a super balance of $50,000 is inconsequential, just $5,000. But that same return later in our lives when our super balance is $500,000 equates to a much more significant $50,000.
APRA’s heatmap of underperforming funds
And that’s why super’s prudential regulator, APRA, is seeking to measure super funds’ long-term investment returns and run underperforming funds out of business.
We were expecting poorly run, subscale super funds to be targeted, but in reality, some of the largest and highest profile super funds have been named and shamed.
Aware Super, the overall second largest super fund in the country, is a case in point. Its Tailored Super Fund has been identified as an underperforming fund, as has Westpac’s BT Super for Life, and Insignia Financial Ltd, the rebranded IOOF, and home of the largest financial planner force in the country.
Free to choose
The underperformance of these major super funds is a timely reminder of the importance of engaging with your super. Retirement is no time to set and forget.
The late American economist Milton Friedman said it best, “Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own.”
The importance of independence
At Daniel Crump Financial Planning, we are independent and not tied to any product providers. It means we can provide advice in your best interests every time.
Keep in mind, there’s more to it than investment returns. We subscribe to leading research houses, Morningstar and Lonsec. We get under the bonnet, and really understand what you’re investing in. Investment returns matter most in retirement, but so does risk.
In this way, we sit beside you and hold your super fund accountable, should it lose its way.
Daniel Crump is the founder of Daniel Crump Financial Planning. This article is general and does not consider your personal circumstances. If you would like advice specific to you, give us a call.
