A couple of years back I set up my own self-managed super fund.
The ridiculous fees of my previous fund were one reason. But the key reason was that I didn’t know what the superannuation fund was doing with my money.
Sure, you get a fancy chart like the one below at the end of each financial year.
MLC’s Strategic Asset Allocation
Source: MLC.com.au
Click to enlarge
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Look, I randomly grabbed a super fund chart from Google. It doesn’t really matter though. Most of them have a similar allocation anyway.
But what does it actually tell you?
Frankly, these charts often left me scratching my head.
It didn’t tell me exactly what part of the Australian share market my money was in. Also, where’s the bonds, commodities and cash allocation?
I’ll come back to that in a moment.
For now, let’s say this MLC chart was a typical representation of my old super, or similar funds.
It appears I had 35% of my super stashed in Aussie equities.
Which ones though? Were they high yielding stocks, growth stocks or defensive stock?
Heck, did the super fund manager just plonk all 35% of my Aussie weighting on a hot tip from a cab driver on the way home from Friday night drinks?
I didn’t know. And you don’t know either.
Simply put, a pie chart doesn’t tell me what they’re doing with my money.
You’ll notice that I keep calling my super account ‘my money’. That’s because it is.
And up until I set up my SMSF, I only knew two things about my super.
My employer paid money into my chosen account. And each year I got a statement with a balance and pie chart.
If you ask me, that’s no way to be in charge of your retirement security.
A few years back I argued this this point with a lecturer at a development course.
For the sake of transparency, I argued, I want to know exactly what the fund managers do. I reckon I should know exactly what stocks are funding the twilight years. Entry and exit prices too please.
After all, it’s my money. Why shouldn’t I be entitled to the nitty gritty details?
The lecturer told me there was no need to know.
‘Really, what do you have to gain buy knowing this information anyway?’He asked me. His reasoning was that all the information would be old by the time it reached me. Therefore, it didn’t matter.
‘Oh, and there’d be far too much paper work for the industry to handle anyway. They’d double your fees,’ was his final statement.
Well guess what…my fees doubled anyway.
But I reckon there’s more to it than that.
One thing I do know about the superannuation industry is that, more often than not, super funds are lumped into the top 100 stocks listed on the ASX.
And I wouldn’t be surprised to learn that most of it sits with the giants of Australian business. The banks, the conglomerates and our two mining giants.
Meagan Evans, Investment Director at Albert Park Investors Guild recently wrote:
‘The largest five stocks in the ASX200 are the four big banks and BHP — making up 38% of the Index! This means that if you hold an ASX Index fund, 38% of your return is dependent on just five companies.’
You know what? I wouldn’t be surprised to find out that is exactly where your super funds are.
These were my reasons for setting up an SMSF. Sure, I couldn’t spend my money. But I wanted to have as much control over it as possible.
However, I’m not alone in making the leap to taking control of my retirement.
This article here says there are almost 520,000 SMSFs in Australia. In total, Aussie’s are now in control of roughly $520 billion, almost a third of the $1.7 trillion super industry.
Clearly, other investors out there want control over their money.
One of the biggest benefits of taking over your own fund is more and better options.
As I mentioned before, there isn’t a lot of diversification to Aussie super funds.
Because of the amount of cash super funds have to play transact with, they get stuck following the same investing book as each other.
Meagan recently commented on the top 10 favourite stocks of leading research firms in Australia. In the year to May, the average return was 2.3%.
As Meagan wrote:
‘You’re not going to retire on 2.3%. You’re not going to even beat inflation. Consumer prices are rising by more than 2.3%. Your cost of living is probably going up even faster, if you included bills and housing costs.
‘My point is, 2.3% is an abysmal return for stocks that are supposed to by top tips.’
This is the problem. You get lumped in with their favourite stocks for the week, month or year.
On the flip side of this is the 10 most hated stocks by the same analysts. Meagan noted that if you bought these hated stocks you would’ve been looking at an average gain of 14.5%.
Numbers like this suggest the mainstream don’t always know what they’re talking about.
Yet, this is still only part of the problem.
Investing only in Australia means missing out on international investment opportunities.
Sure, as I showed above, your super fund might have some exposure to international markets. Again, you don’t know what they are.
In fact, your super fund may have just lumped you into an international listed fund and left it at that.
International markets offer huge opportunities for Aussie investors. ‘Area’s like technology, pharmaceuticals, engineering, software, aerospace, and the big oil companies. These are limited opportunities [in Australia],’says Meagan. ‘The ASX is back at six year highs and is now up 80% from its 2009 low. In that same time investing in the US market would have returned you more than 180%.’
Of course, it’s always easy to look back at see what your gains could have been.
However, the different percentage increases prove you should look beyond Australia for investments.
The thing is there are plenty of opportunities internationally.
Megan tells me there are plenty of ‘World Dominators’ and quality industry companies that aren’t available on our shores.
Having your money stuck in the same old fund might not be working for you anymore. Meagan writes here about the sort of opportunities that she’s looking into right now.
Shae Smith+
Editor, Money Weekend
The post Is Your Superannuation Money Working For You? appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
