Over your working life it’s likely your financial circumstances will change. You might build a share portfolio outside super, acquire an investment property, inherit money, suffer the misfortune of a financially damaging divorce or become risk-averse as retirement looms.
Super funds take these life changes into account and offer members a wide choice of investment options. While you may have started off in a default fund, there may be other investment options and strategies that are better suited to your individual profile.
“Super funds offer lots of investment options that are usually set up around each major asset class or type of investment strategy,” says Alex Dunnin, executive director of research and compliance at Rainmaker Group, which publishes Money.
“These asset classes and investment strategies come with pre-set expectations about their investment risks and investment returns.”
Products range from pre-mixed options such as growth, balanced, conservative and cash to single-asset options such as Australian equities, property or fixed interest. More recently direct investments like shares, exchange-traded funds and term deposits have been added.
Before you make any changes you need to work out your investment strategy and goals. This will include working out how much risk you are comfortable with, the returns you hope to achieve and how long you will be investing for.
“If you’re seeking higher investment returns and you are comfortable with the higher levels of risk that entails, you should consider options specialising in equities or high-growth strategies. If, on the other hand, you are a bit more cautious, you might want to invest in a more conservative, lower-growth strategy, or even one focused only on bonds,” he says.
Members can get the lowdown on the different products on their fund’s website, including the type of risks they carry and expected returns. If you want more information you can phone their call centres and ask them to walk you through the pros and cons of the different options.
Dunnin says you can make switches at any time and you can mix and match the different options. “You don’t have to put all your money in one investment choice, you can have half your money in one option, and split the other half across another two or three options.”
Be clear about your reasons
But you need to be clear about why you’re doing it.
“If you’re going to start moving money around you’ve got to think things through. You’ve got to play the devil’s advocate against yourself.
“If you want all your money in equities, you’ve got to realise returns might bump around, you might have a great year, you might have a terrible year. Or you might say I’m worried about this sort of stuff, I want to be in a conservative fund,” he says.
Generally, if time is on your side you can take on higher-risk options and ride the ups and downs of the market. A high-growth option will achieve higher returns over the long term. But if you are close to retirement you may want to take on a more defensive approach.
Finally, Dunnin says once you’ve made the switch, keep an eye on performance.
“The simplest way to check if your fund and its investment option is underperforming is to compare it with other similar options. Check the performance league tables and see where your fund ranks. Is it about average or better over three or five years?
“Think of your super fund’s performance like your child’s school report. You should have a good look at it at least once a year. Waiting until you retire before checking your super is like not reading your child’s school report until the end of year 12. By then all the damage is done and it’s too late to fix any problems,” he says.
How to change your super investments
You can go to your superannuation fund’s website, log into your member account and switch your asset allocation online. Your fund will confirm your switch by email. Members are generally allowed three free switches a year.
“Very rarely now do you have to fill in a paper form. Again, some people may prefer to do that, but you don’t have to,” says Dunnin.
The switch should take two to three days.
Dunnin says you can nominate how much of your balance you wish to switch.
“Do you want to move all of the money or part of it, or maybe just future contributions? There are lots of ways you can mix and match and switch your money around.”