This Saturday, 12th July, Scott Francis joined Warren Boland's "Weekends with Warren" program on 612 ABC Brisbane. The major topic covered was 5 things you should know about your superannuation member statement. The following is a brief summary of the content covered in the segment:
1/ Make sure your Tax File Number is quoted: Rules changed on the 1st of July last year, that all members of superannuation funds had to quote their tax file number or parts of the fund may be taxed at a higher rate. Most member superannuation statements will tell you whether the tax file number has been received or not - if not you should get in touch with your fund and find out how to pass this detail on to them.
2/ Fees: Fees matter in investing, and all superannuation funds charge some fees of usually starting from 0.7%. There will usually be a statement of the fees for the year on the member statement, and members should assess whether these are reasonable. Obviously you have to pay some fees for a service - you don't want to pay too many. (It is neither wise to pay too much nor too little in fees). Fees often have a number of layers: Administation; Investment Manager; Adviser Fees and sometimes even things like 'trustee fees'. People with Self Managed Super Funds have other fees associated with their fund, being accountant and administrator fees - the important thing is to find out exactly all the fees coming from your portfolio. I have come across a $10,000 superannuation account with fees of $500. That is a 5% fee! That person simply cannot have a successful investment experience paying fees of that level! If the long term return of a balanced fund is 8%, you are giving away 65% of the long term return in fees.
3/ Insurance: Superannuation can be a good place for you to have relatively low cost life insurance. However, you should understand what the insurance is for: how much is the benefit? what does it cost? In the case of income protection - how long is the benefit paid for? Superannuation funds will often have an insurance outline - you should read and understand this, so that you know what you are paying for.
4/ Contributions: It is suprising how many people don't follow up whether their actual contributions are being received into a fund - plus other things that they are entitled to such as the government co-contribution. You should receive around 9% of of your income into superannuation - less 15% tax on the way in. If you are being paid $50,000 this is a contribution of $4,500 less about $675 in tax. You should check that this much in contributions have actually been received. After all - it is your superannuation money; not anyone else's.
5/ Asset Allocation and Performance: These two are related. You should understand the mix of assets in your fund. If you have a balanced fund, what does that include? The Q Super Balanced fund for example has a mix of 75% growth assets (higher return but volatile assets); such as Australian and global shares and property assets and 25% in cash and fixed interest returns (low return but safe and reliable assets). This is a really important part of investing - studies show that it accounts for more than 90% of the variation in investment returns.
A Fascinating Finance Fact:
The Sunday Mail last week looked at the stockmarket tips made 12 months ago by 4 experts in the article 'Redemption Time - Stock Experts Shrug off a Painful Year of Investing.' The article found that of the 16 stocks chosen by the experts, only 2 beat the average market return (the index).
Each of the 4 experts (2 stockbrokers; 1 software that picked outperforming stocks, 1 portfolio manager), picked 5 stocks. The average price movement of the market over the period was (negative)-16.54% for the year. The average return on the 4 portfolios of the experts were -22.59%: an underperformance of 6% a year. Individual portfolio returns were -3.6%; -19.32%; -25.68%; -41.76%.