The recent ups and downs of the share market have been a wild ride for investors, but also present a huge opportunity.
The difference between the best and worst performing super funds is growing, with recent statistics showing the best performing superannuation investments grew by 14.19 per cent over the last 12 months, while the worst performing went backwards by -15.31 per cent.
If you look at the impact of this difference over time, the numbers get a little scary.
For a 20-year-old today earning the average income, over the course of their working career, having their super fund earning an extra 1 per cent means their super fund balance at 65 would be $247,797 higher ($1,091,701, compared to $843,904).
If we use the best versus worst performance figures above, the difference is even larger.
This shows the importance of having a good super fund that will allow your money to actually grow.
But choosing the best super fund isn’t easy. With so many options and funds offering different things, it’s common for people to get overwhelmed and put making changes in the too hard basket.
A massive 58 per cent of Aussies go with their employer’s default super fund, effectively allowing their employer to make the decision on where to invest one of their biggest pools of money. In my opinion, this can be a costly mistake.
In this piece, I want to cover how to choose a good super fund that gets your super money working hard for you.
Start with your investments
Most people that change super funds start by looking at which fund to use, then decide on the investments they’ll select within their chosen fund – but this is completely backwards.
Instead, you should first find the investment option(s) you want to put your super money into, and then choose a super fund that gives you access to these investments at a value-for-money price.
For example, if you want to use index funds, ethical investments, invest into the technology boom or any other options, you should find a super fund that has quality options in the space you’re looking for.
Taking this approach has the added advantage of narrowing down the number of potential funds that could be good for you, taking some of the work out of making your super fund choice.
Value for money
Saving money on your super fund fees will mean more money to grow your superannuation balance faster. But cheapest isn’t always best – value for money is key here.
If two funds are offering the same or very similar investments, I’d personally be inclined to go for the cheapest fund. But the right decision depends on you here, because if one of the funds had a good user experience and customer service, you might decide this is worth paying a little extra for.
To make a smart decision around your super fund fees you need to firstly (actually) understand the fees you would pay for different super funds, and make an informed choice – this will often be a better choice.
Use comparison sites
There are a heap of websites that allow you to compare super funds, including their fees, performance, and other benefits – take advantage of these to do some of the heavy lifting for you and make your life easier.
One word of warning around comparison sites though – it’s important if you are using these websites that you’re comparing like for like super funds and investments. If you end up comparing different types of investments and funds, it can lead to you making skewed choices.
Focus on long term performance
Investing into shares is a long term play, and making decisions based on short term performance can lead to serious investment losses. If you’re chopping and changing super funds or investments frequently, you potentially aren’t giving your investments enough time to do their thing.
Sometimes people think they should be choosing the investments that have performed best over the last little while, but with how markets and the economy impact investment markets, this often doesn’t work.
For example, through 2020 and 2021, technology investments were the strongest performers in the share market, but through 2022 they were the worst performing.
Similarly, resource companies performed poorly through 2020-21, but went gangbusters in 2022.
If you’re constantly chasing what was best over the last while, you will often end up underperforming.
Instead, choose quality investments that will perform well over the long term and stick to your strategy.
There is no one right way here, but the statistics show that index funds perform best more than 80 per cent of the time, so if you’re stuck for a starting point, this can be a solid step forward.
Review your fund regularly
The super fund market is highly competitive, with so many super companies wanting to grow. This is leading to super funds getting cheaper and cheaper over time.
If you choose a good fund to begin with, they should pass these fee savings on over time, but not every fund does this.
Over time, you should do a formal check in on your super fund at least once each year to make sure you’re still getting a good deal.
The wrap
If you have a long time until retirement, your super fund won’t need a lot of your time and attention, but a little goes a long way here.
Getting your super money invested into a quality, value for money fund with good investments will make a huge difference to your bottom line in the years to come.
There’s a lot of noise out there about which super funds are best, but the reality is that getting the basics right is 99 per cent of your job done.
Choose quality investments, make sure you’re getting value for money, then focus on your long term results – checking in regularly to make sure your money is working hard for you.
Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth, the creator of the Smart Money Accelerator, author of Replace Your Salary by Investing and host of the Mo Money podcast. He runs regular free online money education event which you can book here.