Foreign policy

Those with most of their working life still ahead of them are likely to do much better in accumulating savings for retirement than older superannuation fund members. After all, it would be hard for them to do worse than their parents, who have watched with alarm as their account balances have plummeted.

Not that it is their parents' fault their superannuation funds have just had too much money exposed to shares at the very point in their lives that they needed to be more defensive.

But younger fund members have time on their side. They are able to ride out the ups and downs of the sharemarkets before they will need to start drawing down on their savings.

And, unlike their parents, not only do they have the benefit of mandatory super over their whole working lives, but they are also going to benefit from the gradual increase in the superannuation guarantee from 9 per cent to 12 per cent.

On top of that, shares are cheap and could stay that way for several years, given that the eurozone sovereign debt crisis is yet to stabilise.

After five years of volatility, many older fund members will be questioning the wisdom of their fund's high exposure to shares given that their savings now have so little time left to recover before they need to live on that money.

But for younger fund members it is not that they have too much exposure to shares - they don't - they are just too exposed to Australian shares.

About 20 per cent of the typical balanced investment option - where most people have their money - is invested in Australian shares and about 30 per cent in global shares. The Australian sharemarket is dominated by two sectors - resources and financial services.

The problem for those looking to Australian shares to make a substantial contribution to their retirement savings is that the two sectors face significant headwinds.

Mining projects take a long time from initiation to production. When commodities prices were at record highs, the pipeline of new projects became very long.

Many of these projects are coming on-stream now, just as China's economic growth is slowing and commodities prices are softening.

With financial services, the main challenge is slowing credit growth, as consumers become wary of taking on too much debt. It does seem, then, that better opportunities for share price growth will come from companies that are listed on overseas sharemarkets.

Superannuation savings may do better over the long term by having more exposure to industry sectors in which Australian-listed companies are not a player, such as in luxury brands selling their labels to the rapidly growing middle class of developing Asia, or medical technology, where Australia is only a very small player.

European brands, such as French wines and spirits producer Pernod Ricard and German car maker BMW, are in big demand in China. Korea is home to global brands such as Samsung Electronics, the Hyundai Motor Company and LG Corporation. The US remains the world leader in most advanced technologies.

But the argument for younger fund members to re-weight to international shares should not be taken too far. Australian shares tend to pay higher dividends than overseas ones, and the dividends on Australian companies are taxed favourably as well.

There is also the wild card of currency exchange rate fluctuations on overseas shares, although most superannuation funds fully or partially hedge their international share options to remove the effect of currency exchange rate changes.

Most large super funds have at least a dozen investment options on offer.

There will be "diversified" options that spread superannuation contributions between the asset classes with different weightings, from conservative to aggressive, and investment options that invest in a single asset class, such as Australian shares or fixed interest.

Fund members can stay with their diversified option or mix and match the options any way they like. But as a general rule, a spread of investment classes is going to remain the best approach for most fund members.