Today I am going to run through my superannuation investment strategy by comparing the different superannuation investment options available with one of the funds that I have money with. The reason why I am looking into this is because a colleague at work recently became interested in how his superannuation was performing, and he was a little disappointed to learn that he had most of his holdings in one of the lowest performing investment types and was not making very good returns on his money.
What is Superannuation
Firstly though, lets look into what Superannuation is all about. In Australia, Superannuation is the governments way of forcing you to save money for retirement. Employers take a percentage of your pay (normally between 9 and 15%) and put it into a superannuation fund. The idea behind this is that it is supposed to reduce the burden on the pension system as more and more people move into retirement. I’m personally hate almost everything about superannuation, but for the average person who knows very little about money management and financial planning I suppose it is a good thing for them to have.
Superannuation Investment Types
Most funds offer a number of different investment types. The common ones are:
- Growth – This is your risky play, which is supposed to bring in the really big dollars.
- Australian Shares – Normally this is an investment in the top 50 to top 100 stocks on the ASX. Often it will mimic the greater market.
- International Shares – This could be any stock market in the world, but I have found it mimics the US stock market the most.
- Balanced / Stable – This is supposed to be your low risk play that will still bring home some decent returns. It grabs a bit of all other investment types and throws them all together.
- Cash Plus – With Cash Plus you are getting a little bit more than with your cash option. I assume this puts your money into term deposits or bonds to gain a little bit more interest.
- Cash – Pretty much the lowest risk investment option. You will just be getting bank interest.
Superannuation Investment Strategy
When it comes to my superannuation, I work in the medium risk space. The main thing to look at is your long term retirement goals, years until retirement and your appetite for risk. Obviously if you are only 5 years away from retirement and you have a large balance, you don’t want to go and blow the lot on growth and end up with $0 should GFC mark 2 hit. Conversely, if you are 21 years old and have only a few thousand in your account, racing into the cash option is probably not going to give you much money to retire with.
For me I like to look at past performances of the different investment options and try to determine what will provide me consistent returns. The way I currently do this is by looking at the investment performance graphs which you can see below:
The returns for this fund with each investment type are as follows:
- Growth – $24,053
- Australian Shares – $25,594
- International Shares – $13,267
- Balanced / Stable – $21,561
- Cash Plus – $16,493
- Cash – $11,918
What I look for in the graphs is a nice linear line. I don’t want to see my investments jumping up and down like a yo yo. So while I could invest 100% of my money in Australian Shares which has performed the best, I wouldn’t be comfortable with the wild swings. So if I cast my eyes over these graphs the most linear graphs are obviously the two cash options. However, they are also the ones with the lowest returns on offer.
What to Invest in
Because I am still under 30 and have most of my working life ahead of me, I have taken a multi pronged approach. I have put around 50% of my money into Balanced / Stable investment type as it is the most linear of the higher growth investment options.Then I have split the rest between Cash Plus and Growth. Note: If I was in my mid 40’s I would probably skipped the growth option and put more in Cash and if I was just starting out I would have put none in the cash options.
Do you actively manage your retirement money? What type of risk are you willing to take?