How do I find the best super fund?
By Matt Ireland, Evolution Financial Planning Team
With the passing of yet another financial year, we have seen a flood of news articles focusing on which super fund is the best and have heard countless ‘financial experts’ tell us which funds to switch into and which to avoid. These reports all claim to provide an unbiased assessment by comparing apples with apples, however when taking a closer look at each fund it is clear that this is rarely the case.
The media tends to focus solely on the performance of each fund, but rarely provides information about the risks taken to achieve these returns or the overall costs of being a member. This article won’t provide you with the final answer to the “which fund is best?” question, but it will help you perform a fairer and more effective comparison of the super funds available to you.
If you do choose to compare super funds based on performance, you should also compare the investments held by each fund. For example, Fund A may have an annual return of 10% while Fund B may have only returned 5%. On the surface Fund A is the better fund, however to understand why the performance is so different we need to look more closely. Assume that Fund A was invested solely in risky assets such as shares and property, and Fund B took very little risk by only investing in term deposits. In years where the share market goes up, Fund A will outperform Fund B, however, if the share market goes down over the year, Fund A may lose money and Fund B will look like the better fund.
For a real life example, we can compare the HostPlus and CBUS industry super funds. For the 2017-18 financial year, the default investment option offered by HostPlus returned 12.5%, while CBUS Super’s default option returned 9.29%. This is a big difference and on the surface HostPlus is the better fund. However, the HostPlus default option invests 93% of its members’ money into risky assets such as shares, property and infrastructure, with the remaining 7% being invested into less risky debt assets. This fund holds no cash whatsoever, so if the markets were to fall significantly, HostPlus members would have no safety net and could lose a large portion of their balance. CBUS’ default fund on the other hand, only invests 79% of its members’ money into risky assets and holds a larger portion of fixed interest and cash. In short, this means that CBUS members could be better protected from a market downturn than HostPlus members.
You need to decide for yourself if you are willing to sacrifice investment safety to achieve a greater return, or if you are comfortable earning a little less on your investments but sleeping a little more soundly. Financial Advisers can help you assess this tradeoff by weighing up the positives and negatives and discussing how they may affect your lifestyle.
So what should I look for when comparing super funds?
Aside from the performance and riskiness of each super fund, here are some other factors to look into:
· Fees: You need to compare the fees charged by each fund. Some charge a low member fee but a higher investment fee, which can be hidden in the fine print.
· Insurance: Terms and conditions can vary greatly depending on the fund, so you should double check to see if you actually have the cover you thought you did.
· Service: Are you able to call your fund to ask a simple question or do you wait on hold only to hang up dissatisfied with the answer?
· Number of options: Some funds offer a wide range of investment options so that you can adjust your exposure to risk whenever you like. However many funds have very limited options so you may be stuck in an unfavorable position.
· Statements: Can you request a performance or balance statement when you need it or do you have to wait for the end of the year?
Including the above points in your super fund comparisons will help you get the most out of super and prepare you for retirement in the best way possible. If you find that you need some assistance, or just want to run your ideas past someone, a Financial Adviser can help you on your way. If you’re interested in knowing more give Evolution a call on (02) 4903 1111 for a complimentary meeting.
* All figures quoted in this article have been sourced from the HostPlus and CBUS Superannuation websites.