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How to boost your super by $200,000

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Aussies in their 20s and 30s could lose up to $334,826 in superannuation by retirement due to “shockingly high” fees. Here’s how you can protect your nest egg.

Aussie savers only need to do two simple things, the founder of online investment adviser Stockspot, Chris Brycki said today.

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  1. Find the right superannuation fund for your risk appetite;
  2. Choose the fund with the lowest fees.

“For most people superannuation will probably be their biggest source of savings. It is vital you get your money working for you, not for the Fat Cat Fund managers,” Brycki said.

“There are a lot of things you can’t control in life, but you can control what you pay a super fund to manage your hard-earned money for you. Call, email and hound your super fund and demand to know what you pay in fees. If it’s more than 0.75 per cent consider moving it elsewhere.”

Young workers paying 1.5 per cent or more in super fund fees are set to lose more than $200,000 by retirement, he said.

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“That’s the equivalent of the latest Tesla Model X! Ask anyone if they’d rather pay fees to a super fund or have a Tesla parked in their driveway and we’re sure you’d get the same resounding response.”

Risk appetite is also a critical factor when it comes to maximising your savings. As the report explained, a successful strategy begins with choosing a mix of investments appropriate for your age and goals.

As a general rule, the further you are away from retirement, the more risk you can take as you have time on your side to recover losses.

Stockspot suggested savers follow this general rule:

Image: Stockspot
Consider a switch? These are the fittest funds

According to Stockspot’s new Fat Cat Funds report, which measures super fund performance, the best funds have low fees and high returns.

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Fit Cat growth fund

These funds had a reasonably small (25 per cent) allocation to fixed income and cash and returned between 10 and 11 per cent per annum on average.

Fit Cat balanced fund

To earn a spot on this list, funds had an average 48 per cent allocation to fixed income and cash and achieved average returns of 7 – 9 per cent per annum.

Named and shamed: Top 10 Fat Cat funds

And the funds to avoid?

If you’re with one of these funds, chances are your fund is underperforming while also overcharging members.

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Fat Cat growth fund

These were the worst performing growth option funds, charging an average 2.21 per cent in fees and returning just 5-6 per cent.

Fat Cat balanced fund

Industry, retail and corporate funds all featured in this list, typically holding more cash and charging higher fees. This meant their average return was 3-5 per cent per annum.

The indexing question

According to Brycki, members paid up to $17.4 billion in fees last year because managers decided not to use low-cost indexing.

In fact, only 13 per cent of the 500 funds analysed did better than a low-cost index fund with similar fees and taxes over five years.

“This mirrors findings in other markets including the UK, where actively managed mixed-asset funds
have been unable to match low-cost indexed options,” Brycki said.

“People in default super funds would benefit greatly if all money simply went into a low-cost index fund.”

However, managers are often making changes just to justify fees, he argued.

“They have a vested interest to appear to be ‘active’ in making adjustments to their recommendations
from year to year. Almost invariably, assuming funds have the right long-term asset allocation in place,
the best course of action is no action – to do nothing and to leave their fund as-is.”