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Super fund members can add tens of thousands of dollars to their retirement nest egg by investing a little more aggressively, with modelling showing that switching to an investment option with slightly more risk can substantially boost returns.<\/p>\n
Super funds have dozens of investment options from which fund members can choose. Among them will be those where the money is spread between various asset classes, such as shares, property, infrastructure and fixed interest.<\/p>\n
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After Tom Mundy become better informed about super, he switched to a slightly more aggressive investment option as it is very likely to see him retire with a higher balance. <\/span>Credit: <\/span>Joe Armao<\/cite><\/p>\n Generally, over the long term, those options with higher exposures to \u201cgrowth\u201d assets, like shares, produce higher returns over the long term than options in which asset allocations are more conservative. The trade-off for those expected higher returns is higher volatility of returns.<\/p>\n TelstraSuper member Tom Mundy, a computer systems engineer from Melbourne, talked to his fund about the expected risk versus reward for the fund\u2019s diversified options in 2019 and decided to switch some of his super from the balanced option to the growth option.<\/p>\n The 32-year-old has the time to ride out the ups and downs of markets and believes he will have a higher balance at retirement than if he had stuck with the balanced investment option.<\/p>\n Mundy invested the remainder of his super in a couple of exchange-traded funds (ETFs) that are offered by the fund. He has also been putting extra into his super fund via concessional contributions.<\/p>\n \u201cMy parents talked to me about the benefits of super when I was younger,\u201d he says. \u201cI\u2019ve been interested in where my money is going and what I am invested in, as I know it has a long-term impact [on retirement savings].\u201d<\/p>\n Modelling by TelstraSuper, using SuperRatings\u2019 data, shows a fund member who spends an extra five years in the fund\u2019s \u201cgrowth\u201d option, rather than its slightly more conservative \u201cbalanced\u201d option, is likely to deliver thousands of dollars more to the fund member\u2019s balance by retirement.<\/p>\n The modelling shows someone who 15 years ago had a starting balance of $60,000 in the fund\u2019s growth option and who is on an average salary would have seen their super balance grow to $180,171 today, compared to $158,683, if they had been in the fund\u2019s balanced option \u2013 more than $21,000 better off.<\/p>\n Graeme Miller, chief investment officer at TelstraSuper, says younger members who are decades away from retirement have time on their side to ride out periods of market volatility.<\/p>\n Miller says people will be retiring with bigger balances than in the past and will have their super invested throughout their retirement.<\/p>\n \u201cEven people … in their 50s are likely to have their super invested for [many] more decades,\u201d he says. \u201cA higher exposure to growth assets is likely to help their super last the distance.\u201d<\/p>\n The fund\u2019s diversified investment options include growth, balanced and conservative. It also has its lifecycle strategy, which is the fund\u2019s default option for members who do not choose an option, where fund members are automatically stepped through the diversified options as they age.<\/p>\n From October 1, those members in the lifecycle strategy will see their exposure to growth assets reduced at age 50 rather than age 45, and then further reduced at age 70 rather than 65.<\/p>\n Joshua Lowen, insights manager at SuperRatings, says TelstraSuper is one of the few super funds to increase exposure to growth assets at a younger age, but expects more to follow.<\/p>\n Lowen says investment returns are likely to be lower than they have been, and taking on a little more risk can help to fund members enjoy a good income in retirement. Everyone should know how their super is invested, including those in lifecycle strategies, he says.<\/p>\n There are individual circumstances, besides age, such as tolerance for investment risk, that most lifecycle strategies do not consider.<\/p>\n