Yahoo Finance Experts reveal 7 ways to hack your super during coronavirus
Investors have been rattled by the coronavirus-induced volatility that has shaken up global stock markets.
But even if you don't consider yourself an investor, you likely still have skin in the game – through your superannuation fund, which probably invests in a combination of shares, property, bonds and cash.
If you’ve watched your superannuation balance go down in the last few months, Motley Fool Australia chief investment officer Scott Phillips had a few words of advice.
“‘Remember, this, too, shall pass,’” he said.
Speaking this morning on the fifth episode of Yahoo Finance Breakfast Club: Live Online, Phillips and SuperRatings executive director Kirby Rappell shared their top tips on how to make the most of your superannuation:
1. Don’t panic
While you might have become alarmed by the numbers ticking down during the worst of the share market drop in March, switching super funds due to this panic won’t help either.
“I can assure you – I’ve spent 11 years looking at it, there’s no such thing as the perfect super fund,” said Rappell.
“I think it is about long-term performance – five to 10-year performance,” he said. “If you’re trying to find the best all day, you’re probably going to chase last year’s trend, and miss out on next year’s.”
Chasing the “latest cool thing” is unlikely to work in your favour, either, added Phillips.
“Please don't look at the last one or three years of performance and switch funds.”
2. Keep your fees low
It’s important to keep your fees as low as you possibly can, said Phillips: it’s the one main thing that will make the biggest difference to the size of your nest egg in the long run.
High fees can seriously add up: young workers paying 1.5 per cent or more in super fund fees are on their way to losing more than $200,000 by retirement, according to Stockspot.
“The market is going to return what it returns. Some financially do better, some do worse – that’s going to be the case over time.
“The net detractor from all of that is fees,” he said.
“Keep your fees as low as physically possible for the duration of your working life and retirement. That's probably the number one determinant … so be careful when it comes to funds specifically.”
3. Figure out if the numbers check out
How do you know if you’re paying too much for fees? Pick up the phone and find out how your super fund measures against the following figures.
“I'd say you really need to focus on a product or administration face, because they're not going to add to your final retirement outcome, and you need to drive that down,” said Rappell.
Your product fees can be as much as 2 per cent, which you’ll be paying year in, year out. Administration fees can either be a fixed fee – a flat rate of $78 per year is pretty standard – or otherwise should be below 0.2 per cent.
But sometimes, these fees can be higher because you are invested in alternative assets like toll roads. What you should do is see if the long-term returns you’re getting justify the product fees, Rappell said.
4. Growth assets are your best bet
When it comes to picking an investment option, you should take on as much risk as you’re able to cop, suggested Phillips.
“You want to be growth assets. As long as you have the time frame that the time horizon to live through the volatility, you'll get a better return from growth assets over time than anything else,” he said.
“High growth investment options have always done better and I'm pretty sure will always do better over long periods of time than any other investment strategy, so that's always the best option if you can stomach it.”
5. Remember the rule of thumb
Your super fund gives you the option of investing in an array of assets, including shares, cash, property, fixed interest, or alternative investments.
But which one performs better? Phillips revealed a handy rule he sticks by.
“As an asset class, it’s my expectation that shares will beat property, property will beat bonds and bonds will beat cash.”
Whenever you’re investing your money in something that won’t perform as well as something else, you may get the benefits of diversification and avoid volatility – but you’re also trading that for higher returns, Phillips said.
6. Think before you dip into your super
The government has announced the early access super scheme in a bid to help Aussies dip into their cash reserves during the coronavirus crisis – but both Rappell and Phillips advised thinking carefully before doing this.
This is because what is $10,000 now won’t look like $10,000 in a few decades’ time.
“[If] a 30 year old today took about $10,000 now that's going to be worth about $24,000 in today's dollars when they retire at age 67,” said Rappell.
“People need to do what they need to do to get by at the moment, but it does have an impact.
“If you take $20,000 out, it might be worth about $45,000-$47,000 when you get to retirement, so they’re big numbers.”
“[Super] is making that money for you while you sleep. So if you're not sure you really need it, then make sure you are thinking twice before take money out.”
7. Get yourself a finance coach
If your finances make you feel daunted, consider calling in a professional. Enlist the help of a financial adviser, who should be far away from a “wonky analyst” or “super spreadsheet jockey” but more like a coach the way a sports coach or life coach will guide and support you with your goals.
“‘Hey, I know this is tough, stick with it, we'll show you the way; remember, we talked about this before, this is going to be tough. The good times will come, don’t get excited; the bad tomes will come, don’t get depressed.’
“If you can find someone who can help you through that, that’s worth a heap if the alternative is changing funds and getting freaked out.”
But where should you find this financial coach? Your very own super fund is not a bad place. to start. Otherwise, if you get a financial adviser, make sure you click with them and you’re not paying too-high fees there, either.
“Go and get an initial consultation, either free or for a really low price, see if you like them see if they like you see if they make sense to you. Make sure the fees are low.”
Rappell added that people should check advisers’ certifications and qualifications.
“Make sure you put them through the hoops as much as you do the super funds. And make sure you find somebody you can work really well with, and who's got all the smarts sitting behind them ready to help put a rocket under your super.”
Did you ask a question during the live stream? This article will be updated later with responses to your question from Kirby Rappell and Scott Phillips.
Disclaimer: This should not be considered financial advice but is general advice only.
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