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Superannuation
I understand that shopping for a super fund is not a short-term decision and the funds that are performing well today aren’t always going to be the best long-term performers. Still, one question remains: how can I find the best performing super funds today?
Every Australian employee has the choice of which super fund receives super contributions for their retirement. When starting a new job, employees will fill provide the account details of the super fund they wish to nominate, or they can opt for the employer’s default super fund.
Things like strong historical performance, low fees and a wide variety of investment options are the main things. It’s also convenient to have insurance options within the super fund and the ability to quickly roll your super into or out of the fund if you wish.
Taking the reigns on your super fund also means you have to consider and manage your expectations regarding investment returns. As the old saying goes, higher risk, higher reward and different types of investment options within your super fund should mean different expectations about investment returns.
Growth investment options, also known as an aggressive investment options, carry the highest potential returns. Still, risk-taking is a double-edged sword and different categories of growth investment options, carry different risks. To best illustrate, the returns of high-growth or aggressive investment options will exhibit more volatility than a balanced or default investment option that holds a variety of assets like bonds and fixed income products, which typically are not as volatile.
As the name suggests, defensive investment options invest in a range of fixed-income investments and historically have provided a more steady investment return than growth funds. As you would expect for taking less risk, the potential investment returns are a bit lower. Defensive investment options typically buy bonds (government or corporate) for a set interest rate and payment period. While trying to predict stock market returns is challenging at the best of times, bonds have historically been a safer investment as governments and good quality companies are usually ones to keep their word and pay back the debt they borrow.
Hunting the super fund with the best short term performance is easy to do, but long term performance is key when you are investing your retirement savings. Super funds are long term investments, and you should be analysing returns on a 5-year time horizon at the very least. Jumping from super fund to super fund based recent performance is like looking in the rear-view mirror, and it usually does not leads to big gains. Transaction costs from changing your investment strategy often are likely to wipe out any long-term profits.