Consider superannuation as part of your overall investment portfolio.
Vanguard did some research on Australian attitudes and approaches to investing in 2021 which found that the top barriers were insufficient funds to make an initial investment, and insufficient funds after paying day-to-day expenses.
While the value of having a financial plan and a budget cannot be understated in addressing these barriers, the more important thing to remember is, most of us are already investors through our superannuation funds. If you are 18 years and older, and are paid $450 or more (before tax) in a month, you are entitled to super contributions, and by that definition, you are an investor. From 1 July 2022, that $450 threshold will no longer apply and you will be entitled to superannuation contributions regardless of how much you earn.
The good news is that you’re definitely an investor, and the more you save now (whether in super or outside of super), the more money you will have to lean on in your retirement. The not so good news is that you shouldn’t just ignore your super, and you now have several things to consider.
Investment strategy – if you have not actively chosen a superannuation product for yourself, you should be asking – do you know what investment option your super fund has put you in, and does it suit your risk profile and goals? Do you know if your super fund is performing or underperforming or if the option you’re invested in is meeting the benchmark? You can easily find out how your super fund is performing compared to other super funds on the ATO’s website and if you are not satisfied with how it is doing, perhaps consider switching to a fund that meets your needs better. Don’t forget to consider the costs of the fund when you swap.
Adding to your super – just like how adding regularly to an investment outside of super will help boost your retirement savings, making extra contributions to your super whenever you can is a great way of adding to your retirement savings, sometimes with the added bonus of reducing your tax. You could consider making salary sacrifice contributions or personal super contributions. If you are partnered, you should also look at the option of having your spouse contribute to your super or splitting contributions if it makes sense. For those 65 years or older, making a downsizing contribution into your super is a tax effective way of adding to your retirement funds.
Your overall portfolio – finally, if you have investments outside of super, don’t forget to consider it as a single investment portfolio when deciding on an investment strategy. This will ensure that you are looking at a whole of portfolio strategy and reduce the risk of being overweight in a certain asset class or sector. For instance, if your super fund is invested mostly in Australian equity assets, it might make more sense for you to invest outside of super in other sectors (such as international or emerging markets) or even more defensive asset classes such as fixed interest.
Regardless of your investment goals, having a plan in place and making active decisions about the components of your investment portfolio under your control, including superannuation, will go a long way in the long-run.
For more information on getting the most out of your investments, book a time to chat here, and we’ll discuss what’s best for you.