Your Super

Superannuation will become one of the most significant assets that you own – it is for this reason that you are well advised to take an active interest in the fund to which you belong.

Most employees are able to choose their preferred superannuation fund to accumulate their retirement savings – but remember, it’s only an option to choose a fund, so if you’re happy with your existing fund, you can stay put.

Who gets to choose?

The choice of super fund rules do not apply to all employees. You may not be offered choice if you are:

  • Paid under a State Award or Industrial Agreement where a particular super fund is specified
  • Paid under certain workplace agreements including some Australian Workplace Agreements (AWAs)
  • A Federal or State Government employees who is not eligible for choice due to legislation 
  • Government employees who are members of the CSS or the PSS
  • A member of certain defined benefit funds and have reached a certain level of benefit in that fund.

If you are not in one of the above groups it is likely that you can make your own choice of superannuation fund.

The mechanics of choice

As you might expect, there is a process to follow if you wish to choose your preferred superannuation fund – it’s not simply a matter of sending an email to your employer, saying ‘please send my super to the ABC super fund’.

Your employer’s responsibilities

Unless you fall into one of the exceptions outlined above, your employer must offer you the ability to choose your superannuation fund when you start your employment.

A standard choice form must be given to all new employees within 28 days of commencing employment.

The employer will also have chosen a default fund which is used by any employees who don’t want to make a choice or who don’t make a valid choice. The details of the default fund will be written on the choice form that your employer gives to you.

Your responsibilities

Assuming you are eligible, you can complete the standard choice from to advise your employer of your preferred fund. You will need to provide the following details:

  • The name of the superannuation fund and your membership details
  • The address, Australian Business Number (ABN) and unique superannuation identifier (USI) number of the fund
  • A letter from your super fund confirming that it is a complying fund that can accept contributions from your employer

Importantly, if you don’t provide sufficient details to your employer, or the employer is not able to contribute to the fund, your compulsory employer contributions will be made to the default fund.

If you change your mind on which fund you prefer in the future, you can update details with your employer but they may only allow you to make one change in any 12-month period.

Key features – what to look for in a super fund

Superannuation funds offer a range of different features. It is important to compare funds and choose one that best suits your needs. Some of the key aspects to consider when making this choice include:

Insurance cover

For many people, the cheapest access to death, disablement and income protection will be through a superannuation fund. This is because the size of superannuation funds may allow them to obtain group (bulk) cover for members which may convert to lower premiums. The fund may also offer automatic acceptance limits or cover up to a certain limit without asking for medical evidence.

However, differences in premiums and cover levels between superannuation funds can vary significantly and the features may not be as extensive as offers on non-superannuation insurance policies. You need to compare carefully what you get for your money.

Investment options/performance

The range and selection of investment options can vary widely across funds. You need to think about your investment preferences and what sort of flexibility and range you wish to choose from.

Past performance is never a guarantee of future performance. However, sustained poor performance, relative to similar funds, may indicate something is wrong. Of more importance is whether the fund has a robust set of investment objectives and strategies and a well rounded range of investment options.

Fees and charges

When it comes to comparing superannuation funds, this is the aspect that seems to attract most attention – and with good reason, as seemingly small differences in ongoing fees can make a significant impact on returns over time and hence your eventual retirement savings.

For most people, the most appropriate fund will be the one that provides all the features you desire, at the lowest cost. This is not necessarily the cheapest fund.

Fund services

This includes such aspects as a useful member website and client service centre, education services, member newsletters and access to other member benefits such as discount home loans and credit cards for example. However, be careful that you’re not paying for services you don’t need.

Fund flexibility

You want to be sure that your chosen superannuation fund can grow with you as you move from your working life into retirement and beyond.

Important considerations are whether the superannuation fund can allow you to move seamlessly from accumulation phase into pension or drawdown phase, and also the types of income streams offered.

Of equal importance may be the flexibility to have any death benefits paid as a lump sum and/or pension to your dependants. Your financial planner can explain the importance of this aspect and how various options may potentially save your beneficiaries significant amounts in tax.

Your options

It is worth reiterating that while you may have the option to choose a superannuation fund, you don’t need to move anywhere if you are happy with your existing fund. But it is important to seek advice and do research to ensure you have made an informed decision. 

Investments 101

Asset Classes Explained

The ups and downs in financial markets have made many investors uneasy about investing in riskier assets. In such times, it often helps to take a step back and consider each asset class to better understand how it works and what to expect.

The main types of asset classes are shares, property, bonds (or fixed interest as they are often called) and cash.  Within each asset class, there are further asset types. For example, within shares, investors can choose from Australian shares, international shares or within the international shares arena, specific regions or countries like China or emerging market shares.

Investors may sometimes base their investment decision on the historical performance of asset classes although this approach is fraught with danger.

The value of $100 invested in the various asset classes since December 31, 2009 is illustrated below.

Indices used are as follows: Australian shares – S&P/ASX 300 Accumulation Index, International shares – MSCI World Ex Australia Index (net. Div. Reinvested) AUD, Australian fixed interest – S&P/ASX Australian Fixed Interest Index, International fixed interest – S&P Global Leveraged Loan Index AUD TR Hedged (note, index only in place since May 2013. Estimated $120 invested at that point), Listed property (REITs) – S&P/ASX 300 A-REIT Accumulation Index, Cash – RBA Bank Accepted Bills 90 Days. CPI ABS Consumer Price Index

It is paramount that investors understand the different asset classes to ensure they make informed investment decisions.  These different asset classes are explained below.  

Australian shares

Shares represent part ownership in a company. There are different types of shares such as ordinary shares, preference shares or partly-paid (contributing) shares. Owning shares in a company entitles the investor to participate in any dividends paid by the company from its profits. This represents the income return from shares.

Dividends from Australian shares often include tax benefits in the form of franked dividends. Franked dividends are dividends paid by a company out of profits on which the company has already paid tax. The investor is entitled to a franking (imputation) credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company. This means that the investor avoids paying tax twice on the profits generated by the company – once by the company and again by the investor at their own tax rate.

Share ownership also exposes the investor to movements in the share price of the company. If the share price increases above the price that it was purchased, the investor will make a capital gain. On the other hand, if the share price falls below the price at which the shares were originally purchased, the investor makes a capital loss. 

The price of shares can be influenced by several factors including the performance of the local and international economies, interest rates, inflation and the magnitude of competition in the industry the companies operate in, as well as investor sentiment.

Share prices tend to fluctuate substantially over short periods of time but over longer periods such as over five and ten years, their returns tend to be more reliable. For this reason, it is often suggested that investors consider share investments only if they are willing to stay invested for at least five years.

The type of company and industry can have a major impact on the performance of the shares. Resource companies that sell commodities to countries including China and India have are affected by movements in commodity prices and have begun to benefit from a rebound in commodity prices in the last year. On the other hand, some industries like banks have benefitted by the search by investors for high yielding investments. The composition by industry of the Australian share market is illustrated in the graph below. It illustrates that almost half of the Australian share market is represented by materials and finance companies.


International shares

International shares are shares in companies that are domiciled in a country other than Australia. Investors often spread their money across a range of countries and industries. Like Australian shares, the return from international shares is made up of any dividends received as well as the capital gain or loss resulting from the change in the company’s share price.  International shares are different to Australian shares in several key ways:

  • The dividends paid by international shares tend to be lower than those paid by Australian companies and therefore the income return tends to be lower. Also, international shares do not have franking credits and therefore may not be as tax effective as dividends paid from Australian companies.
  • International shares offer a far greater range of investment options. International shares offer access to other countries with different economic prospects such as the United States and Europe as well as China and emerging markets. International shares can also provide exposure to industries that may not be well represented in Australia. The greater spread of shares across geographies and industries can result in lower risk to your portfolio because of the diversification.
  • The returns of international assets including shares are also affected by changes in the Australian dollar. Generally, if the Australian dollar strengthens, returns from international assets are reduced because the currency movement results in a loss when the international asset is converted back to Australian dollars. However, when the Australian dollar weakens, returns from international assets are increased because of currency gains.

Like Australian shares, the share price movement can be very volatile over short periods of time and it is best to invest in these only if the intention is to stay invested for at least five years.


There are different types of property investments. An investor can purchase a property or number of properties directly in which case they will be benefit from the rent received by the properties as well as the change in the valuation of the property over time. The returns of these properties will be dependent on the quality of the tenant and the rent paid as well as the location and type of property such as residential, industrial or commercial.

An investor can purchase properties directly or via units in a trust that purchases the properties on behalf of investors (these are called unlisted property trusts). Accessing property via a trust often allows the investor the ability to gain exposure to more properties than if they used their investment amount to purchase property themselves. This spread of properties can reduce the overall risk of the property investment.

Investors can also gain exposure to property by buying units in a property trust that is listed on the Stock Exchange (listed REITs). Both unlisted and listed property trusts can borrow money as part of the trust structure and therefore returns to investors will be affected by the borrowings. Borrowing allows the trust to increase their purchases of properties and/or undertake development of properties. Returns to investors are paid after the borrowing costs are repaid. The level of borrowings can also add to the risk of the investment particularly if the valuation of the properties fall or the income generated by the properties is insufficient to pay the interest.  

Bonds (also called fixed interest)

A bond is a tradeable debt security, usually issued by a government, semi-government or corporate body to raise money. Investors in the bond have lent money for which they receive a fixed rate of interest over a set period. The bond is repaid with interest on the predetermined maturity date. Some bonds can be traded on the share market.

The returns from bonds are based on the fixed rate of interest paid over the term. If the bond is traded the price will be affected by changes to market interest rates.  If market interest rates rise, the price of the bond will fall and the investor will have a capital loss which reduces their total return. Conversely if market interest rates fall, the value of the bond will increase meaning that there will be a capital gain that adds to the overall return from the investment.


Cash is one of the safest investments. It includes cash in the bank, cash management trusts and even cash in your pocket.  Cash returns are based on the official cash or interest rate which is set by the Reserve Bank of Australia as part of its monetary policy. The Reserve Bank changes the official interest rate to attempt to control inflation.

Putting it all together

The right investment depends on the individual investor and their needs and circumstances. There are several things that each investor must consider such as their investment time horizon (how long can the money be invested), the level of returns sought and the amount of risk the investor is willing to accept. Investors would be wise to combine asset classes in their portfolio to achieve diversification (that is, not putting all eggs in one basket).

It should be remembered that past returns are not a good indicator of future returns and therefore decisions on which asset class to invest in should not be based on historical performance.

Warren Buffett Bet

With 2017 over, Warren Buffett has sealed his victory over hedge funds in a bet he made a decade ago.

The Berkshire Hathaway chairman in 2007 bet $US1 million that the S&P 500 would outperform a selection of hedge funds over 10 years.

As of Friday, his S&P 500 index fund had compounded a 7.1% annual gain over that period. The basket of funds selected by Protégé Partners, the managers with whom he made the bet, had gained 2.1%, according to The Wall Street Journal.

Buffett agreed to give the prize money to Girls Inc. of Omaha, Nebraska, a nonprofit he has previously supported.

Each side first put $US320,000 into a zero-coupon Treasury bond that they estimated would be worth $US1 million by 2018. But it was moved into Berkshire Hathaway’s class B shareswhen the bond’s value rose faster than expected. The 11,200 shares they bought in 2012 were worth $US2.22 million on Friday, The Journal noted.

Buffett has long taken issue with hedge funds’ promise of outperforming the market and their high fees that take away from the returns their clients earn.

He has turned out to be right on both fronts.

Actively managed funds have seen outflows while passive funds have gained since the financial crisis. Meanwhile, an abundance of exchange-traded funds has made it cheaper and easier for investors to buy into just about any group of stocks.

“My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory,” Ted Seides, a founder of Protégé Partners, wrote in a concession piece on Bloomberg View in May. “The S&P 500 looks overpriced and has a reasonable chance of disappointing passive investors.”