Get smart with your super
Don't take the lazy option, take charge of your fund, writes Nicole Pedersen-McKinnon.
Don't take the lazy option, take charge of your fund, writes Nicole Pedersen-McKinnon. If you're one of the lucky ones, the super statement that will shortly land in your letter box will show a tiny positive. The median balanced fund posted a gain of 0.4 per cent in the past financial year, says research house SuperRatings.OK that's not great, but it's the third consecutive year of gains (this time by the skin of the teeth) and far preferable to the 6.4 per cent and 12.9 per cent losses on the credit crack-up. It takes median returns for the five-year period since then to minus 0.2 per cent.Of course, your personal statement may tell a different story, for better or worse. A survey by CoreData last week found just two in five Aussies are expecting a figure with a plus in front of it.Which is why you shouldn't be wedded to either your fund or your strategy. Here's a checklist to make sure your retirement savings are on track.CHECK YOUR FUND TYPEIf you didn't actively choose your investment split, you'll have a balanced fund as above. As many as 80 per cent of us do.That means, on SuperRatings definitions, about 60 per cent to 76 per cent of your money is in growth assets such as shares and property. The rest will be invested more defensively in fixed interest - bonds - and cash.Now there's a lot of talk that Australians have too many shares and not enough bonds, and so are too exposed to equity market fluctuations.But the appropriate asset mix does not come down to any blanket rules but to your own circumstances: your age, your risk appetite. Broadly, the older and more cautious you are, the less risk you can afford to take, so a larger defensive holding might be appropriate.However, there's another big consideration: timing. Investors fleeing to "safety" have pushed sharemarkets far below their average value and spurred Australian bond prices to an all-time high.In other words, dump the former for the latter today and you'll be locking in a loss in favour of an over-inflated alternative.A recent study by Russell Investments found Aussie equities and residential property have still returned more to investors than cash and fixed interest over the past 10 and 20 years. More importantly, the asset manager forecast the return from bonds over the next 10 years will be even lower.If your asset allocation is wrong for your needs, fix it slowly - a portion of your fund at a time.CHECK YOUR FUND MANAGERCoreData's research shows 57 per cent of us will stick with our super manager even if their performance falls short of our expectations, which speaks more of apathy than strategy.While slavishly switching to last year's top fund has been proven time and again to lead to lousy longer-term performance - van Eyk Research is the latest to confirm first-rate performance usually only lasts a couple of years - sticking with a perennial underperformer is a mistake, too.What you want is consistency. A fund that has delivered decent after-tax returns across different time periods in different market conditions. Find the top-rated funds on superratings.com.au.CHECK YOUR ENTITLEMENTSYou may have missed a massive change on July 1: super effectively became tax free for people earning less than $37,000. Even for everyone else, though, you (mostly) pay only 15 per cent on your contributions and 15 per cent on investment earnings. This makes it the best way to invest tax-effectively.As such, the government has curbed how much we are allowed to put in and imposed big penalties if you go over. But there are still giveaways of which to take advantage.Under the co-contribution scheme, if you earn less than $46,920, meet a "work" test and can find $1000 after tax to pay into super, the government will kick in a bonus up to $500 (down from $1000 last year, but still).Make a $3000 after-tax super contribution for your low-earning spouse and you can also get a tax offset of $540. Are you missing out?CHECK YOUR PROJECTED RESULTFar more men know their super balance to the nearest $1000, says CoreData, than do women - 35 per cent versus 19 per cent.Go to ASIC's super calculator at moneysmart.gov.au and input your balance, contributions and desired time until retirement to see how much (or little) money you might have. And play around with the investment returns and fees while you're there to get an idea of just how much difference a smarter super strategy could make to your life.Nicole is the editor of afrsmartinvestor.com.Follow her on Twitter @NicolePedMcK.
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