Recently I was talking to a farmer about his super fund. He described how several years ago his accountant had recommended that he transfer some of his farming land into super.
“I regret doing it” he said. “See how super funds have performed. I have lost a lot of money!”
I tried to explain to him that he still owned the same piece of land, albeit in the name of his super fund rather than personally. The fact that mainstream super funds had performed poorly was hardly relevant to him.
He, like many others had got caught up in the negative sentiment at the time of the GFC. Investment markets were on the nose and super fund returns were in the spot light.
He, like many others was confused about how superannuation works.
Most super funds now have a wide range of investment choices. These can cater for conservative investors (cash or term deposit options) right through to more aggressive investors (shares and geared funds). Too often, I see people with their funds invested in the ‘default’ option, which is then never reviewed.
Peoples’ tolerance to risk generally does change as they get older. Accordingly, investments should be reviewed regularly and should move in line with their risk tolerance. You may borrow to buy an investment property when you are in your 30s, but would you do it in your 60s? Perhaps not. Super is no different. The default ‘Balanced’ option may be too conservative in your 20s and 30s but may be too risky in your 60s.
Alternatively, as my farmer client had found, a self managed super fund provided him with the opportunity to invest in assets that he was familiar with and understood, his own farm land.
When was the last time you reviewed your super investment choices?
Super retains its position as the most effective place for your retirement funds to be placed. Tax and Centrelink concessions can be significant, and can more than offset investment market fluctuations. A decision as to how superannuation can help you save for retirement should have nothing to do with investment markets.
As always, in relation to financial matters, seek professional advice. Don’t just do something because a family member or your mate at the BBQ thinks it’s a good idea!