Ask the Expert: How balanced funds work, couple goals and inheritance

The default option of many superannuation funds is also their ‘Balanced’ option.

The default option of many superannuation funds is also their ‘Balanced’ option.

Question 1

  • Hello Craig, enjoy reading your column and advice.  I would like to know if I have been given the correct advice about my super investment choice. I am a woman (65) and currently have around $300k in balanced conservative fund. Fortunate to have other assets of home/land and some shares. Would I be better to have it in Balanced? I intend to work full time for another three years. And wonder if I might miss some extra gains in the conservative balanced fund.

Hello, and thanks for your comments.

Selecting an appropriate investment option for your super is one of the most important things you can do.

Most people leave their super in the fund’s ‘default’ investment option.

For many funds their default option is also their ‘Balanced’ option. One large industry fund has stated that more than 85 per cent of their members have stayed in the default option.

The Balanced fund may be the correct option for many people, but everyone should at least review that options investment objectives and risk category.

All super funds must detail the standard risk measure for each of its options. It does this on its website or investment guide.

The Standard Risk Measure (SRM) helps you compare investment options by the expected number of negative annual returns over any 20-year period.

Over the past five years or so Balanced funds have outperformed conservative balanced funds by about 1.50 per cent to 3 per cent per year.

However, there are big variations in this.

It’s also worth noting that while different funds may label an investment option as ‘Balanced’, the underlying investments that it holds may be very different from one another.

That is why it’s important to look at:

  • Investment objectives
  • Standard risk measure
  • Underlying investment classes, such as how much is in shares and property versus more defensive assets like cash and fixed interest
  • Suggested minimum investment time frame.

A Conservative Balanced option would have a lower suggested minimum time frame than a Balanced option as it should hold less-volatile assets.

However, your retirement date is not necessarily your investment time frame, unless you plan to take money out of super at that time.

If you intend to convert your super to a pension at retirement then you could invest in the same or similar investment option, thereby increasing the time frame you will be invested for.

When markets are doing well, people ask themselves ‘Should I be investing in an option that has been getting better returns?’

However, when markets are falling, they then ask ‘Should I be investing in an option that has fewer ups and downs and won’t lose money?’

If you have already received advice in relation to this (as indicated in your question) then I presume this was based on a discussion and questions that an adviser has conducted.

You should aim to stay invested in the same strategy, one that matches your risk profile and investment time frame regardless of current market conditions.

The worst result is to try and time the market.

Or when markets are falling, to switch to a more conservative option, thereby locking in losses.

Question 2

  • Hi Craig, my partner is 15 years younger than me, we are both still working. Am I correct in thinking that I cannot access the pension at all at retirement as my partner will keep working full time for 15 years after I retire? And that I need to save to be a fully self-funded retiree? Would I need to possibly separate from my partner if I need to claim the pension if my savings aren’t enough to live on? I’d very much appreciate some advice. Thank you.

I’d hope your partner would help provide you with an income if they are working and you are not.

Couples sometimes do treat each other’s income and assets separately, but more commonly they are shared.

Whichever approach you will take it’s important that you have a discussion, so you are in agreement, and you know where you stand.

Centrelink does treat couples as ‘one unit’. Therefore, your partner’s income will be counted under the income test when you apply for the age pension.

You can still receive a partial age pension if you and your partner’s combined income is less than $3725.60 per fortnight ($96,865 per year).

Therefore, you will have your super, other savings, perhaps a partial age pension and hopefully your partner chips in.

Question 3

  • I am about to retire at age 64. I inherited the family home in 2018 and this was where I have lived since birth. I plan to sell it and move into an apartment. What tax if any will I have to pay on the funds from the sale.

I assume for the family home that this was the deceased’s main primary residence.

And from your question I also assume this has been your main primary residence since inheriting it.

If both those assumptions are correct, then no tax will be payable upon sale.

If my assumptions are incorrect, I suggest seeking tax advice.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

The New Daily is owned by Industry Super Holdings

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