Most of us open our super statement, glance at the balance and file it away. The line that deserves a closer look is usually further down: the investment option your money is actually sitting in. Over a working lifetime, that single setting can shape the final result more than almost anything else.
The line most people never read
Every super fund places your savings into an investment option. It might be called Balanced, Growth, High Growth, Conservative or something more creative, and each one splits your money differently between shares, property, infrastructure, bonds and cash.
Many Australians never chose theirs. If you started a job and didn’t tick a box, your money went into the fund’s default option. That can be a perfectly sensible place to start, but it was designed for a typical member, not for you.
Why a small gap can become a big one
Super is a long game, and long games reward compounding. Returns earned in one year are added to your balance and then earn returns of their own the next year.
That is why a modest difference in average annual return, say a percentage point or so, doesn’t stay modest. Stretched across several decades, and applied to a growing balance, it can add up to a very large gap by the time you retire.
The size of that gap depends on your age, your balance, your contributions and how markets behave, so any neat figure should be treated with suspicion. The principle is what matters: small differences, repeated for decades, compound.
Risk is the trade-off, not a free lunch
Options weighted towards growth assets, such as shares, have historically tended to deliver higher returns over long periods. They also tend to swing more from year to year, and some years they fall sharply.
Conservative options hold more cash and bonds. Their balances usually move less, but over decades they may grow more slowly, and that slower growth can leave you with less than you hoped for.
Neither approach is automatically right. What matters is whether the setting suits your:
- Age and time horizon, since someone decades from retirement has longer to recover from a downturn
- Comfort with ups and downs, because panic-selling in a slump can lock in losses
- Other assets and income, including a partner’s super, property or a defined benefit
- Plans for retirement, including when you expect to start drawing money
Past performance is not a reliable guide to future returns, so a strong recent year for one option proves little on its own.
Fees quietly work in the other direction
Just as returns compound, so do costs. Investment fees, administration fees and other charges are taken from your balance, which means they also reduce the amount that keeps growing.
A fee that looks tiny as a percentage can be significant across a whole career. Some options, particularly those with more actively managed investments, cost more than simpler ones. Higher cost doesn’t guarantee better results, and lower cost doesn’t guarantee worse.
When you compare options, look at the net return after fees and taxes, over long periods such as seven or ten years, rather than one standout twelve months.
A sensible way to check before the year ends
The end of the year is a handy prompt, though nothing is urgent overnight. Log in to your fund and find the name of your current option, its asset split and its stated risk level.
Compare it with the other options on offer, including fees and long-term net returns. Check whether you hold more than one super account, since duplicates can mean paying fees twice.
Switching is often simple, but it can have consequences, such as missing a market rebound. Think it through before you click.
This is general information, not advice tailored to your situation. If your circumstances are complicated, or you’re approaching retirement and unsure how to position your money, a licensed financial adviser can look at the whole picture.
Ask any adviser how they’re paid before you agree to anything. Spending twenty minutes on this one line is a small effort for a decision that quietly carries so much weight.