Start­ing out: Steph Nash

It’s wise to look be­yond the sur­face when de­cid­ing where to put your su­per

Money Magazine Australia - - CONTENTS - Staff writer Steph Nash has a bach­e­lor of com­mu­ni­ca­tions de­gree.

It might be a bit too early to call, but I think su­per­an­nu­a­tion is fi­nally start­ing to look sexy. Those of us that can’t af­ford to buy a house are think­ing we’re prob­a­bly go­ing to rent for the rest of our lives, so when we are 80 years old and still pay­ing the land­lord ev­ery week, it would be re­as­sur­ing to know that our su­per will keep us fairly com­fort­able (and maybe even get us to Bali once a year).

The prob­lem is that the new highly at­trac­tive su­per­an­nu­a­tion prod­ucts mar­keted to mil­len­ni­als might not be the best thing for us right now.

There are two big things that mil­len­ni­als are con­cerned about: so­cial re­spon­si­bil­ity and con­trol. This has given birth to a range of mil­len­nial-tar­geted su­per prod­ucts. Some set them­selves apart by be­ing so­cially re­spon­si­ble while oth­ers stand out be­cause they ex­plic­itly in­vest in things we know are “hot”.

Let’s take the new­comer Space­ship, for ex­am­ple. Clearly tar­geted at mil­len­ni­als, its high­est weight­ing is in in­ter­na­tional shares, with the fund’s web­site in­di­cat­ing that for a port­fo­lio bal­ance of $100,000, around 35% is in­vested in trendy tech stocks like Al­pha­bet and Face­book. Its catch-cry is “in­vest in the fu­ture – where the world is go­ing”.

Kirby Rap­pell, from Su­perRat­ings, says some of the new su­per funds on the mar­ket miss the mark when it comes to in­vest­ment re­turns and fees.

“If you were to look at the av­er­age per­son who may have $60,000 in su­per, and then look at what the funds’ ex­pec­ta­tions are, it’s just so dif­fer­ent to what you’d ex­pect for mil­len­ni­als,” he says. “The key chal­lenge for the funds at this stage is on the in­vest­ment side. What sort of re­turns are you go­ing to get out of this stuff? And are you go­ing to get a bet­ter deal than you could get some­where else?” Some new funds miss the mark when it comes to re­turns and fees

Ac­cord­ing to the Su­perRat­ings data­base, the av­er­age fee for a bal­ance of $50,000 across all su­per funds is around $650pa, or 1.3%. If you had a bal­ance of $50,000 in­vested with Space­ship, you would pay $878pa in fees on that bal­ance (there are some re­ports that fees will be low­ered thanks to re­cent new seed fund­ing). An­other new su­per fund, Good Su­per, of­fers a bal­anced op­tion at a whop­ping $1078pa, or 2.15%, for a bal­ance of $50,000.

Aus­tralian Eth­i­cal is an­other su­per fund that’s start­ing to tar­get mil­len­ni­als. It has an ac­tively man­aged in­vest­ment team that se­lects stocks based on so­cial val­ues. The rate of re­turn over 10 years for Aus­tralian Eth­i­cal’s growth op­tion is 1.9%pa. Ac­cord­ing to Su­perRat­ings, the av­er­age rolling 10-year re­turn to April 30 this year was 4.8%pa for bal­anced op­tions, which is a huge dif­fer­ence – es­pe­cially con­sid­er­ing the Aus­tralian Eth­i­cal op­tion is growth.

New funds won’t have a long-term re­turns his­tory for com­par­i­son pur­poses. In­stead, Rap­pell says you should check the fund’s in­vest­ment ob­jec­tives, which should be listed in its PDS. Space­ship’s growth op­tion aims for a re­turn equiv­a­lent to the con­sumer price index (CPI) plus 2%. “The me­dian bal­anced op­tion in the mar­ket is cur­rently CPI plus 3.5%,” he says. “Space­ship is be­ing pretty cau­tious. For a growth port­fo­lio, the ob­jec­tive is usu­ally around in­fla­tion plus 4%-4.5%. So that sticks out a lit­tle bit – it’s pretty dif­fer­ent.”

It’s re­ally easy to be lured by mar­ket­ing into a fi­nan­cial prod­uct that may not be the best op­tion. While I have no prob­lem with these new funds (and there are a lot of them – most re­cently Grow Su­per, which was suc­cess­fully pro­moted on the satir­i­cal news web­site The Be­toota Ad­vo­cate, and Zu­per, which is ex­pected to re­lease its PDS this month), I think young in­vestors need to take a more ac­tive ap­proach to se­lect­ing and mon­i­tor­ing their su­per. Ide­ally, you should choose a fund that has low fees and per­forms well.

You should al­ways look be­yond the sur­face when weigh­ing up your fi­nan­cial de­ci­sions. Sure, not prof­it­ing from war or cli­mate change would be amaz­ing, but is it worth pos­si­ble hard­ship in your old age? It’s def­i­nitely some­thing to think about.

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