"Where should I put my Super?"
“Hang on, mate,” I said “Let me write that down. You’ve given me the topic of my next article”.
We were catching up with friends on the weekend, and my mate and I had gone to grab sushi to bring back home.
While we waited for it to be made, we stood out in the sun, chatting. He had a question:
“I should know this... but how do I make sure I’m in the right Super fund?”
It is a cracking question.
For a couple of reasons.
First, Super is very opaque at the best of times. Unless you’re in the finance industry, can you name more than, say, three or four Super funds? And would you know where to go, to compare them?
Second, despite plenty of advertising, most of us really only think about Super once a year, when we get our statement in the mail. In that moment, we wonder “Do I have the best Super fund?”.
Then…
Well, that’s it.
We move on.
Until next year.
And so it goes.
I don’t have the stats, but I’d reckon maybe 90% of us who don’t have a Self-Managed Super Fund are in whatever default fund our employer chose for us when we joined that company.
Which would be fine… except that’s rarely the best fund for us.
Now, I can’t tell you how your employer chose your fund. But I have to say, based on the information I’ve seen, I would bet -- a decent amount of money -- that they didn’t choose the one they objectively thought was best for their employees.
Now, before you accuse me of being jaundiced and cynical, let me share two examples:
1. I’ve spoken to enough people who are in objectively terrible Super funds, that it stretches the laws of mathematics - luck? chance? -- to assume it could be otherwise.
But even if you think that’s possible, here’s the kicker:
2. I know, because I’ve been through it on behalf of the team here at The Motley Fool.
Here’s how it went, in our case:
-- US-based HR team: “We need a default Super fund. Let’s engage a Super expert to make some recommendations.
-- Super expert: “Here are our best three options”
-- Me: “But where are the low-cost Industry Funds”
-- Super expert: “We’ve never been asked to include those before”
-- Me: “...”
Yes, seriously.
Neither that expert -- nor any of its previous employer clients -- had thought to even include non-profit funds in their ‘universe’ of available options, let alone short-list them.
(And the expert was only paid by us. They weren't financially conflicted... they'd just never done it, and never been asked to!)
I am pleased and proud to say we included those funds and -- because my employer does care about our team -- our HR team took our suggestion and chose an industry fund as our default choice.
Frankly, had our HR gurus not asked for involvement from some of us, they would have chosen from the short-listed group. And no-one would have been any the wiser.
But they -- my colleagues, my fellow Fools -- would likely have been poorer for it.
Because, as you likely know, at a large enough scale (think: pre-mixed investment options, measured across decades), it’s likely that investment returns roughly average out.
Which means, if you want to maximise your Super balance, you probably should -- all else being equal -- put fees first.
I can’t remember now what the difference was, but I think the cheapest fund we were recommended was double the cost -- for the employee -- of the industry fund we ended up choosing.
(I actually want to say it was closer to three or four times the price, but I’ll be conservative.)
You’ve seen the ‘compare the pair’ ads, right?
You know the sorts of savings you can make on fees over decades.
And yet many -- maybe even most -- employers either don’t know or don’t care enough to make sure you’re getting the best possible deal.
Which is an indictment, particularly on companies that are large enough to know better (and to be resourced to make those decisions).
And an indictment on the experts who don’t bother to include not-for-profit funds on their short-lists.
Now, I'll give most employers the benefit of the doubt. It's complex, and most aren't finance experts.
They probably just didn't know better.
Until now.
It’s also why my mate’s question was so important.
“I’m still with [Underperforming Retail Fund] because that’s who my employer chose as my default fund.”
“How can I find the best one?”
Now, to be clear, I have nothing against fees, per se.
But they’re like taxes.
I have no issue paying tax. In fact, I want to pay a LOT of tax, if it means I’ve made a LOT of capital gains.
And I’m happy to pay fees if I’m getting above-average returns for the privilege.
Because it's not the fees themselves that matter -- it's the return you get, net of fees, that counts.
But, if you accept my premise that, over time, pre-mixed Super options (‘Conservative, Balanced, Growth’ etc) are likely to tend toward average…
… isn’t it likely that, in these generic areas, the best thing we can do is maximise our potential returns by minimising fees?
I mean, it’s possible that your chosen Super fund outperforms for the next 10, 20 or 30 years -- but it’s also possible that it’ll underperform.
And if you don’t know… then at least control what you can -- and that’s fees.
So that’s what I told my mate: I reckon your best choice is probably to look for a large, reputable, low-cost industry fund.
For the record, we chose AustralianSuper for our team.
That was a few years ago, and we’re probably due a review, but you could do much, much worse than going with them -- or another large industry fund.
So, if your employer doesn’t already have a low cost industry fund as their default choice, here’s two things you can do today:
1. Jump onto the AustralianSuper (or other large industry fund) website and open an account, then rollover your fund; and
2. Speak to your HR team, and ask them to review their default fund, and ask them to ensure the review includes low-fee options.
(And if you’re an employer, or work in HR, here’s a free tip: changing your default fund to a lower-cost option is a great way to give your team more benefits at little-if-any cost to you! Who said you don't get anything for free?)
Here’s to a more comfortable retirement!