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Super returns high but perhaps you could do better being more aggressive

Superannuation funds are enjoying a purple patch but even higher returns could be on offer for those willing and able to take the risk.

Jul 24, 2024, updated Jul 24, 2024
Photo: Skitterphoto/Pexels.com

Photo: Skitterphoto/Pexels.com

Superannuation has delivered remarkable returns for the past financial year with the average balanced or growth fund delivering between 8.8 per cent and 10 per cent, according to different measures used by SuperRatings and Chant West.

Those returns were earned on funds with between 60 and 80 per cent growth assets in their portfolios.

The vast majority of superannuation accounts, 65 per cent according to the latest APRA figures, are in those allocations, mainly through the MySuper system where employers channel workers who don’t make other choices.

That has worked pretty well for most people with returns near double figures for last year.

Over 10 years the top 10 performers in that category returned about 7.2 per cent, above their target performance of CPI plus 3.5 per cent.

Chant West research lead Mano Mohankumar says staying the course has been important for super: “The return experience over the past two years in the face of much uncertainty is another reminder of the importance of staying the super course.”

The return of inflation in 2022 had people worried, but the median growth fund has delivered 19 per cent for the following two years after a small loss that year.

There is a question worth asking, however. Could you have done better? The fact is many people have.

Other options

Although the majority of super accounts are in MySuper, it’s not where most of the money is.

A year ago APRA figures show that while MySuper accounted for 65 per cent of members, they only had $954.9 billion invested, or 37 per cent of the total APRA regulated funds.

There was another $1.74 trillion in APRA funds elsewhere, along with $933 billion in self-managed money trying to earn better returns.

A look through the chart above will show you that that being in high or even all growth allocations will have delivered better than the standard balanced/growth option.

Ashley Bishop, financial planner with What If Advice and Accounting, says he talks to clients about risk and “it often turns out that the balanced option is not necessarily the right one for the longer term”.

That is particularly for younger people who have commitments like mortgages and education and want to increase their super without making extra contributions.

“If you’re willing to accept some short-term volatility and low returns every now and then it is generally born out that high-growth allocations perform better than balanced,” Bishop said.

If you do want to look at more aggressive options, then there are a number of ways you can go about it. Quite simply you can just choose a higher-growth option in your super fund.

But most of the big funds are now offering more complexity than that.

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AustralianSuper, for example, now offers do it yourself  pre-mixed super options that allow members to organise exposure to assets like private equity, international, shares, bonds and unlisted assets according to levels of risk.

There are also options related to market indices that can add extra portfolio zip.

The fund says using that mechanism for high-growth exposure aims to beat CPI by more than 4.5 per cent over time.

But it warns you need a minimum time frame of 12 years to make the strategy work and over five years it is high risk.

But it can be a good strategy for many.

“For people who are willing to take the risk and talk about the risk, high-growth outperforms,” Bishop said.

Building a platform

For those who want to really get into the complexity, for-profit retail super funds offer wrap products in which a portfolio can be built up with myriad possibilities.

MLC, for example, says it can offer two diversified and single sector multi-manager funds and 10 SMA model portfolios managed by the highly rated MLC Asset Management team.

If you want to get really fancy it can build customised portfolios with more than 500 managed funds via a range of products, model portfolios, market indices, term deposits and annuities.

Before you go down that path, however, you need to be either a highly sophisticated investor or use a good adviser to help build your portfolio, Bishop says.

“If you get the right mix then you can certainly outperform the pre-mix options,” Bishop said.

There is a cost for that sort of advice, however, and it can be as much as $4000 or $5000. That can be worth it if you have a big enough balance and the advice turns into profits.

Most industry funds can offer you varying levels of advice ranging from the level of complexity Bishop is talking about to cheaper and more limited advice on building asset allocations on offer within the fund.

Bishop also says that the old idea of taking a more conservative position in retirement no longer holds as “you could be retired for 20 or 30 years and you need to grow your assets over that time”.

So just to recap, by all means look at more aggressive super options – but don’t run off into the battle without appropriate advice.

This story first appeared in the The New Daily which is owned by Industry Super Holdings

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