What does your super fund do with your money?
By Matt Ireland, Evolution Financial Planning Team
It’s easy to dismiss your superannuation as an unimportant part of life until you are ready to retire. But did you know that your money is being invested on your behalf in financial markets all around the world?
If you’ve ever found yourself staring blankly at your annual super statement wondering “what’s going on?” you’re not alone. Many Australian’s ignore their super until they need to access it in retirement, at which point they have lost out on years of potentially greater performance and lower fees.
Looking at your statement you may have spotted something along the lines of a “Balanced” investment or a “My Super” option. This is an investment option that has been selected by your super fund on your behalf. You may also have the ability to choose your own investments depending on the fund you are a member of. These options place your money in a wide range of assets such as shares in businesses from around the world, property projects, term deposits and often keep a portion in cash as well.
Each super fund will offer different options that vary greatly in both performance and the amount of risk members are exposed to. It is vitally important to understand the investments your super fund offers as slight differences in fees or performance can have an enormous impact on your balance when it comes time to retire.
But what do they mean by shares, property, fixed interest and cash?
The investment option you or your super fund have selected will hold a number of different assets that are all intended to earn you a return on your money. These assets are usually shown in a chart on your annual statement and can be broken down into the following categories:
· Shares - Represent a partial ownership of a company. If you own shares in BHP for example, you own a small portion of the business itself which entitles you to receive some of their profits each year.
· Property - The property investments in your super fund are often made up of developments such as stadiums, hotels and conference centres, and may also include investments in the property development businesses themselves.
· Alternatives - This is a broad class of assets that do not typically fit into the definition of shares or property. They can range from commodities such as gold and silver to infrastructure projects such as toll roads and pipelines.
· Cash - Refers to investments that are held in bank accounts or other short term cash products. These investments earn a low rate of return when compared to shares and property but are very safe, ensuring that your money is protected from market downturns. Term deposits are often considered a cash investment due to their relatively short investment duration.
· Fixed Interest - These investments refer to longer term debt products that have a defined rate of return. This includes bonds issued by governments or businesses, mortgages and other interest paying investments. The value of these investments can vary depending on the current interest rate and are therefore slightly more risky than cash.
There is far more to each of these investments than can be explained here, but it is important to discuss these products with a professional to ensure you can utilise them to achieve your financial goals. Super doesn’t have to be as confusing as it seems, so don’t let it frustrate you for another day. If you would like to chat more about the different types of investments available to you, give Evolution a call on (02) 4903 1111 for an obligation free meeting.