Super is a long term investment, which means relatively small differences in returns can compound into much larger differences over time.
For someone aged 35 with around 30 years until retirement, simply remaining in the same default investment option without reviewing whether it remains appropriate could have a significant impact on their eventual retirement balance.
Many super funds offer default investment options designed to suit a broad range of members.
But your super doesn’t have to remain in the same investment strategy for your entire working life.
If a different investment approach was appropriate for you and produced an additional 1.2% p.a. net return, the difference may appear relatively small from year to year.
Over 30 years, however, compounding can make the outcome very different.
A 1.2% difference in annual returns may not sound significant. But when that difference compounds year after year, the gap can become much larger over time.
Using the same example of a 35-year-old starting with $150,000 in super, here’s how the difference could grow over 30 years.
Same starting balance. Same contributions. Just a 1.2% p.a. difference in net returns.
Investment performance is important, but reviewing your super isn’t simply about finding the fund with the highest recent return.
A proper super review should consider whether the overall strategy remains appropriate for you, your goals and how long you have until retirement.
Is your current mix of growth and defensive assets appropriate for your age, goals and tolerance for investment risk?
What are you actually paying, how has your investment option performed over the long term, and are you receiving value for those costs?
Are you making the most of employer contributions, salary sacrifice and other contribution opportunities available to you?
Do you still need the insurance held through your super, and are the level of cover and premiums appropriate for your circumstances?
Sometimes the outcome of reviewing your super is that your existing fund and investment strategy remain appropriate.
The important part is knowing that you’ve made an informed decision rather than simply remaining in the same option because that’s where your super has always been.
✓ Increase your super contributions where appropriate
✓Review your investment strategy
✓Reduce unnecessary fees
✓Review your insurance cover
✓Get regular financial advice
The real cost of not reviewing your super may not become obvious for many years. Small differences in investment returns, fees and strategy can compound over decades.
For someone in their 30s or 40s, there may still be significant time to make changes and allow those decisions to compound before retirement.
The goal isn’t to constantly change your super. It’s to make sure the strategy you have today remains appropriate for where you want to be in the future.
Let us take the stress and hassle out of managing your financial goals so you can focus on the important stuff.
