Starting out: Steph Nash
It’s wise to look beyond the surface when deciding where to put your super
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.