Question 1

I’m invested in a conservative option with my super. I see ‘balanced’ and ‘growth’ options are getting a lot better returns. I’m scared of losing money though and don’t like to take risks. Should I switch into these funds?

All investments carry some risk, but it’s important to clarify what ‘risk’ is.

Within a typical superannuation fund, risk doesn’t mean ‘losing all your money’ (although in other settings and investments it may mean that).

Within a typical (industry or retail) super fund diversified investment options are spread across different asset types (shares, property, bonds, cash, and other alternative style investments).

And within each of those types they are spread out again. For example, with shares, it would be across shares all over the world, BHP, CBA etc. in Australia, Apple, Google etc, in the US.

So, the possibility of you losing all your money in all these investments is next to nil.

Measuring risk

One way to measure investment ‘risk’ within super is how certain (or not) you are about the investment returns you will receive and the potential for short-term drops in the amount you have invested.

Typically, the more ups and downs in your balance (technically known as volatility) the higher the expected return.

Source: Marketindex.com.au

Higher-risk options, like a ‘growth fund’ have the potential for higher returns. That means a larger balance for your end retirement balance.

However, they are also more vulnerable to market ups and downs; this means you may not be able to protect your savings from short-term drops in value, and this does lead some people to panic and switch to cash or very conservative options.

This is the worst outcome as you are switching at the wrong time.

People love the saying ‘buy low and sell high’, but most do the opposite. When markets have fallen/are falling they sell in a panic, when the prices are low (cheap).

What to focus upon

All investment options are a trade-off between risk (the value of your balance going up and down) and return.

It’s the long-term return you should focus on (unless you plan to take funds out in the next few years).

Growth options tend to do better over long periods 10+ years, but you will experience lots of market movements in between.

A conservative option is a slow and steady return, but the returns are generally pretty modest. Balanced options lie somewhere in between.

The Australian Stock Exchange (ASX) recently provided the above chart.

I love it. It goes back 124 years and shows the return of the ‘all ordinaries’ (this tracks the performance of the top 500 companies listed on the ASX). You can see while there have been many periods of negative returns, positive returns have occurred over 80 per cent of the time and have quite often been very substantial.

So try and focus on the long term if you can.

The best approach for most people is to educate themselves (hopefully by reading articles like this) and then choose an investment option they are comfortable they can stick with.

You can also seek some advice from your super fund, as many provide investment choice advice at no additional cost.

Question 2

Hi Craig, I enjoy reading your column every Monday and have a question from left field. My super fund AustralianSuper won’t release a lump sum I have applied for. My question is when I reach pension age in a little over a year’s time and I have to start either an income stream or withdraw the full amount and neither AustralianSuper or myself have arrived at a resolution. Who is at fault if either of these two actions can’t be done and what would happen in this instance? Regards, Mick

Hi Mick,

Super funds (except SMSFs) are regulated by APRA (Australian Prudential Regulation Authority).

They must ensure they are following various superannuation regulations, and APRA monitors they are doing this.

Therefore, it’s important to understand why they won’t release the funds, i.e. what rule are they pointing to?

Have you ‘met a condition of release’? (It sounds like yes as you are nearly age pension age).

Is there any stop or note on the account due to a settlement or family court order?

If you don’t have a reasonable response, you first should make a complaint to the fund.

And if still unresolved, you can take your complaint to AFCA (Australian Financial Complaints Authority).

It is literally their job to assist consumers and to reach agreements with financial firms (including super funds) about how to resolve their complaints.

If a complaint does not resolve between yourself and AustralianSuper, then AFCA can decide on the outcome.