The 4 Ways to Invest Your Super
Choice can be immobilising. There’s a name for it – analysis paralysis. It often means that investors end up defaulting to the easiest option even if it isn’t the best for them.
A common place we see analysis paralysis is with superannuation. A large proportion of Australians stick with their default funds, often finding it overwhelming to change. The fees, performance, fund options, and sheer number of superannuation providers can all contribute to this reluctance to make a switch. It isn’t hard to see why many people don’t fully engage with their superannuation. Here’s a more palatable perspective: when you break it down, there are only four main ways to invest within the superannuation system. Understanding which option works best for you can make the choice easier and help in deciding on which superannuation provider to pick. Below is a quick explainer of the four options.
Pre-mixed Options Available through industry and retail superfunds, this is the default option for most people. It offers a pre-mixed asset allocation in funds often labelled ‘Balanced’, ‘Growth’, or ‘Conservative’. These funds are classified as ‘multi-asset funds’ and will typically contain asset classes such as Australian and International Equities, Fixed Income, Property, Alternatives, and Cash. Each fund has a mandated range for each asset class. For example, one 'Balanced' option may hold between 10-45% in Australian shares, while another holds between 11-21%. The mix in these portfolios can vary greatly between superannuation funds, so it is important to pay attention to the specifics of each fund. Professional investors manage the allocation decisions and the underlying investments.
Asset-Class Level Options Also available through industry and retail superfunds, these options allow you to choose your exposure to certain asset classes directly. For example, some investors may choose this option because the fees can be lower than pre-mixed options, and it allows for a more tailored asset allocation. A younger investor with a long time until retirement may not want an allocation to cash, which is typically included in pre-mixed options. This option provides the flexibility to choose your exact allocation to each asset class you want exposure to in your portfolio.
Direct Investment Options This option is for investors who want more control without the complexity of managing a full SMSF. Most industry and retail funds that offer this option allow investors to choose from a list of ASX 300 shares, ETFs, and LICs. For example, instead of choosing a 40% allocation to a generic Australian equities fund, an investor could choose a 3% allocation to CBA, a 4% allocation to BHP, and a 30% allocation to a specific ETF.
Self-Managed Superannuation Funds (SMSFs) SMSFs allow complete control and transparency for investors but come with significant regulatory and compliance burdens. Given their flat service and administration fees, an SMSF typically suits balances of a certain size. They offer unique options, such as the ability to invest in direct property or to have multiple members in the Fund, which can reduce the per-person cost.
Source: https://www.morningstar.com.au/personal-finance/4-ways-invest-your-super
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