Choosing a super fund can seem a daunting task. There are plenty of options, and the opaque fees and complex paperwork means that a simple decision can appear more difficult than it needs to be. I’ve set this post out to give you some priorities to think about, rather than reviewing funds or giving advice.
Fees should be your focus
There’s no such thing as a free lunch in investing – because we all invest in the same sharemarket and we all have to balance risk vs returns in choosing what assets to invest in.
However, lower fees are perhaps the closest thing you can get to a free lunch. The difference in fees can be astonishing – some retail funds charge 2% of your assets every year, whilst index options in industry funds are charging less than 0.1%. With average returns on shares around 7%, losing 2% to fees every year is going to make a huge difference to your retirement assets.
Fees in super funds are usually comprised of a few components. They are usually listed in an “Investment Guide” if you’re trying to research the fees.
- A fixed admin fee, for the privilege of having an account – usually $78pa in an industry fund
- A variable admin fee, based on your account balance – usually very low or non-existent in industry funds, but can be up to 2%pa in retail funds
- A fixed product fee. E.g Sunsuper Australian Shares Index – 0.08%pa or IOOF MultiMix Australian Shares Trust 1.16%
- A variable product fee – usually for actively managed share funds
Consolidate your super
Consolidating all your super accounts into one account will save you money because you avoid paying multiple admin fees or for duplicate life insurance policies. Find your lost super using the ATO website – you might have some super sitting there from when you had a job in high school. Make sure you consider any fees or loss of insurance when you close an old account.
Consider passive rather than active management
Passive investing is available through super – you just have to go looking for it. Passive investing is using a fund that tracks the overall performance of the sharemarket or index (e.g ASX 300), rather than individual stocks chosen by a fund manager. You will never outperform the market, but likewise will never underperform, and because fees are lower you often come out ahead. Warren Buffett recommends them, especially for less financially savvy investors.
Consider industry super funds rather than retail (bank owned) funds
Hopefully the Royal Commission has made it clear that banks aren’t your friends. Industry funds are run by unions, and usually are run with members interests at heart and a better focus on low fees, rather than profits for shareholders.
Make a decision
The most important step is actually picking a fund and making it happen. People have a tendency to procrastinate, and super is ripe for this because we are disconnected from the money – even though it’s ours. Don’t let your super run on autopilot. Do some research and pick
Some funds to check out
– A starting point, in no particular order. Read our disclaimer below.
Sunsuper – My super fund. One of the first to offer passive options.
HOSTPlus – The barefoot investor’s favourite. Well regarded
REST Super – Highly regarded, often wins comparisons and reviews