How Super & Managed Funds Work
Super is designed for people to be able to provide for themselves when they retire.
While it is a long time until I will be able to access my super, I think it is worth setting it up right so that I maximize the amount I will get in the future.
The Industry Super Ads
I think of those industry super ads – where the guy who pays commissions ends up with $50,000 less than the guy who doesn’t pay commissions. I think this thinking is correct – but obviously the wrong investment choices will matter as well.
Your super contributions (see more below) will be invested with a Super fund – such as AMP, MLC or other such acronyms. Your money is usually invested in managed funds which themselves invest in a variety of assets. The income from these investments is then usually reinvested.
Not all managed funds are equal.
My work super is invested MLC (however if you are looking to pick a super fund please speak to a financial planner). I use MLC only as an example because their managed funds are easy to distinguish – Horizon 1 – 7 Managed Funds – 1 being the least risky and 7 being the riskiest.
Using the fund profile tool (link below) I had a look at what the MLC Horizon managed funds are invested in http://www.mlc.com.au/fundprofile/flow/fundProfile?execution=e1s1
Horizon 1 – Bond Portfolio (75% bonds, 25% cash)
Horizon 2 – Capital Stable Portfolio (13% Global shares, 10% Australian shares, 50% bonds, 10% cash)
Horizon 3 – Conservative Growth Portfolio (15% Global shares, 20% Australian shares, 30% bonds)
Horizon 4 – Balanced Portfolio – (20% Global shares, 30% Australian shares, 15% Bonds)
Horizon 5 – Growth Portfolio – (35% Global shares, 35% Australian shares)
Horizon 6 – Share Portfolio (50% Global shares, 40% Australian shares)
Horizon 7 – Accelerated Growth Portfolio (same as 6 but with borrowed money so percentages equal 130% of money you put in). 60% Global Shares, 50% Australian shares
What do all these numbers mean?? Well the lower the horizon the lower the risk (chance of losing money) and the more consistant the return.
The higher the horizon the more risk (more chance of losing money) but a shot at higher returns.
Which is better? Nobody knows because they don’t have a crystal ball.
But next week I will discuss one way of viewing investing in super when you are young and have lots of time up your sleeve!