Five years ago, Dave Lancaster made some big changes to the way his super was invested and he hasn’t looked back.
“A professional told me a long time ago that unless you’re of a more advanced age, then any fund should be high growth. So I extrapolated that to my own situation,” says Dave, a truck driver from Sunbury in Victoria.
“There are a few constraints but basically I was able to move, say, 90 per cent of my funds into ASX 200 or 300 shares, as well as exchange-traded funds,” says Dave, 49.
Five years later, Dave says he’s had “a few failures [but] a lot more successes” with his superannuation’s growth.
If you’ve realised your super balance isn’t quite where it needs to be or you just want to maximise its chances of growth, you might want to consider taking a leaf from Dave’s book.
We asked two experts to explain how you can make changes to the way your super is invested, including who it’s suitable for, what the risks can be, and where to find help if you’d like to learn more.
How changing the way your super invests your money works
All super funds have a default offering — strategies they will invest you in if you don’t choose an investment strategy.
“But they will also have other options that you can choose for yourself,” says Adelaide-based independent financial adviser Jacie Taylor.
This can be as simple as jumping online, or onto your super fund’s app, and changing this investment strategy instantly, which is what Dave did. (Other funds may require you to fill out paperwork and send it back via the post.)
But keep in mind that different super funds offer different ways that members can change their investments.
“Some of them just have five or six different options ranking from conservative to aggressive,” says Ms Taylor.
Essentially, you can pick an investment option and the fund will choose the actual shares to invest in within that category. (You can find out about your fund’s investment options by checking its website or product disclosure statement.)
Other funds “allow you to pick your own shares on the platform”, explains says Richard Gough, a Melbourne-based financial adviser.
Dave took this approach, picking his own shares — “like a pseudo- self-managed super fund,” he describes it.
“My fund gives you quite a bit of control,” he says.
You can also often opt for a combination of the above two approaches: “You might go, I might allocate a portion to doing it myself, and a portion of the fund doing it for me,” says Mr Gough.
But a heads-up: picking your own shares is most appropriate for those who are experienced, confident and educated about the share market. While you don’t need formal training or a degree to get started, according to Mr Gough, you will need to be prepared to devote time to researching your investments (you can get started using some of the resources listed at the bottom of this article).
“The more informed you are about how shares work the less risky it becomes — and the more experience you have in all sorts of markets (such as the GFC or the COVID crash of early 2020) the better you will be to make informed decisions as well.”
When to consider investing your super in high-risk offerings
If you’ve got a choice, both Mr Gough and Ms Taylor recommend that youngish readers invest a significant portion of their super in ‘aggressive’ or ‘high-growth’ options where possible.
While investing in a strategy with higher risk may sound daunting, it’s worth considering because, in general terms, higher-risk investments tend to offer greater potential rewards (in exchange for a greater chance of loss or under-performance).
For example, shares are riskier than other assets like bonds.
You can also take on more risk by investing in a concentrated manner; for instance, by investing your super in a few sectors or companies. The risk, of course, is that these investments won’t perform as well as you think they will — so it’s a strategy best used by experienced investors.
“Generally you’ll get higher risk the more you lower your diversification, so you can invest in the top 200 companies, or you can invest in just health stocks or just tech stocks [in which case] you’re narrowing your exposure,” Ms Taylor says.
“Those will usually be more of a high risk and sometimes they will be higher growth.”
Dave invested before he hit 45 of age so he could “wear the fluctuations in the market”, and that’s an approach our experts endorse.
“If you’re under 45 — or even under 50, really — you want to have that mindset of high growth,” says Mr Gough.
But Mr Gough warns that high-risk investments aren’t the right choice for those who lack the disposition to ride out volatility: “Regardless of their age or timeframe, if investing in shares makes you lose sleep at night, you should take a less risky approach,” he says.
And it’s also worth ensuring some diversification within asset classes — and across different asset classes — as a way of managing risks.
“I favour broadening your exposure,” says Ms Jacie. “So you offset that risk by having that money in cash, for example.”
Look for low fees, too
As well as investing in high-risk funds, Ms Taylor suggests choosing funds that have low fees, such as index shares.
“If you see the word index, it’s going to be cheap,” she says.
“Generally you want to be invested in low-cost, passively-managed index funds. And you want to have exposure domestically and internationally,” she says, so you might want to invest in both an Australian index fund and International index fund.
Her quick-and-dirty advice?
Where to learn more
Keen to brush up on your investment knowledge before changing the way your super is invested?
Our experts say it’s never too early to start thinking about making a change to your superannuation fund’s investment strategy.
Your super fund is a good first point of call, Mr Gough says: You can generally contact yours to discuss the investment options they provide, and learn more about what is possible within your existing fund.
The Federal government also offers a free Financial Advice Service, which aims to help Australians increase their confidence with matters including investment or superannuation.
Books on investing in shares are a great way to learn more, Mr Gough adds. He recommends Scott Pape’s Barefoot Investor for those getting started, and online subscription services (such as Morningstar, The Motley Fool, and Stock Doctor) can provide provide information and research into shares, he says.
But when seeking investment advice, it’s important to be wary of advice from Facebook: “Groups on social media can be helpful to discuss different stocks, but you need to be really careful as you don’t always know who you are talking to or their credentials,” he warns.
This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
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Posted 1h ago1 hours agoSun 12 Sep 2021 at 8:00pm, updated 10 Sep 202110 Sep 2021Fri 10 Sep 2021 at 6:12am