There is a popular financial book released a few years ago in Australia.
In it there are plenty of reasonably handy tips about budgeting, investing and generally being good with your money. The author makes a point of saying the advice is only general in nature, yet blatantly suggests readers should use particular products. One such product is an industry superannuation fund and it’s underlying “Index Balanced” option. The reason – it has low fees in comparison to many other super fund investments. In fact, the author describes it as the “lowest cost fund in the world”.
Now this is all heady stuff and sounds great to the uninitiated, who it so happens are generally the people who read the book. In fact during a recent Royal Commission the superannuation fund says $2.5 billion was invested into it by Australians as a direct result of the book “recommendation”.
But here’s the problem. Everyone is different when it comes to investing and not all people are suited to investing in the particular “Index Balanced” option offered by the fund. Younger people may be better of with a fund that has greater exposure to shares. Older people may be better off with less exposure to shares.
Furthermore, low fees do not necessarily mean better performance. Cheap doesn’t always mean good quality. Take the option “recommended” in the book. For the 3 years to the end of October 2019, its annual return was 10.04%, compared to the higher cost Balanced option which returned 10.50%. If you look back 5 years, the low cost option returned 8.07% per annum compared to 9.48% for the higher cost option. (All returns are quoted net after fees). To put this a different way, over the 3 year period the lower cost option has cost the $2.5 billion dollars invested around $34 million by way of inferior returns. Over the 5 year period it has cost a whopping $105 million in inferior returns!
The point here isn’t that the superannuation fund is bad. The point is that you should do detailed research specific to your own particular circumstances before investing in anything.
Taking the advice of a reputable financial planner can help you make the right decisions and avoid making the big mistakes.
For advice that is designed specifically for you and your needs, give the team at Steve May a call and start a conversation today.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Sensibly Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
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Shanley Financial Planning Pty Ltd trading as Steve May Financial Services (ABN 19 612 825 180) is a Corporate Authorised Representative of (1265706) of Sensibly Pty Ltd (AFSL 533923)
Nick Shanley, Steve May and Luke Styles are Authorised Representatives of Sensibly Pty Ltd (AFSL 533923)