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Super Investment Strategies: What’s Right for You?

December 22, 2023 | Investment Superannuation

When it comes to our retirement savings, some of us are content to let compound interest work its magic. Others, on the other hand, let their super fund take a few calculated investment risks on their behalf, knowing that it will pay off in the long run. In contrast, some of us prefer to take the bull by the horns.

Super investment plans can be complicated as these need to take a long view and require adjustments from time to time. What’s right for you may not be suitable for others. Thus super investment strategies need to be as unique as our personality.

That is why it’s essential to understand what goes into making super investment strategies.

What are the super investment options I can choose from?

You need to understand the investment mix of various super fund options before deciding where to invest your super money. Otherwise, you’ll be second-guessing yourself throughout your investment period.

GROWTH OPTION

Its investment mix of asset classes is 85% growth assets (shares/property) and 15% defensive assets (fixed interest/cash). A “high growth” mix can invest 100% in shares and/or property. It aims for higher average returns over the long term, which entails higher risk and negative returns with market volatility than with lower-risk options.

BALANCED OPTION

It has an investment mix of 70% growth and 30% defensive. A “moderate” mix will have 50% growth and defensive. It aims for respectable returns but less than growth funds to reduce losses in weak years; thus, its losses are typically less impactful than with growth options.

CONSERVATIVE OPTION

This option has a portfolio of around 30% growth and 70% defensive. Its long-term returns are lower and there is reduced investment risk. Negative annual returns are less likely than in balanced or growth alternatives.

CASH INVESTMENT OPTION

It invests 100% in Australian deposit-taking institutions or “capital-guaranteed” life insurance. It protects money and revenues from investment losses, however, it is subject to inflation risk.

ETHICAL INVESTMENT OPTION

This investment option excludes investments in companies that fail environmental, social, and governance requirements. Ethical options range from conservative to high-growth.

Once you’ve determined the right investment mix, your range of available investment options depends on what your super fund offers on its investment menu.

Industry Super Fund Investment Options

Industry Funds were traditionally low-cost super funds with few pre-mix investment possibilities and offered Conservative, Moderate, Balanced, Growth, and High Growth investment options. Many Industry Funds now offer other investments, including ASX-listed shares.

Retail Super Fund Investment Options

Compared to Industry Funds, Retail Super Funds offer hundreds of managed funds and ASX-listed equities.

Retail Super Fund fees were higher than Industry Fund fees due to their investing options. Many Retail Super Funds now offer basic and full access super funds to compete with Industry Funds on price.

SMSF Investment Options

SMSFs are flexible and limited only by superannuation legislation and your SMSF’s Investment Strategy and Trust Deed.

SMSF members can invest in residential and commercial property, Australian shares, international shares, and fixed-interest products such as term deposits from any provider. SMSFs are typically more expensive to operate than Industry and Retail Super Funds.

Depending on personal circumstances and financial situation, your investment approach will differ from person to person. After all, each of us is unique.

If you wish to compare super funds, the Australian Taxation Office (ATO) created YourSuper comparison tool to assist investors in choosing their super.

Super Investment Strategies for Couples

Spouse-splitting super contributions let you transfer 85% of certain super contributions to your spouse. You may use this to equalise account balances, access super early, reduce your super balance, or keep more of your balance from Centrelink.

Another motivation to contribute to your spouse’s super is the spouse contribution tax offset. The spouse contribution tax offset can save you up to $540 per year.

Super Investment Strategies for Low-Income Earners

If you earn less than $37,000, the Low-Income Super Tax Offset (LISTO) can enhance your super balance by up to $500 by receiving contributions and filing your tax return.

If you earn less than $57,016, you may be eligible for the government super co-contribution of up to $500 by making a $1,000 non-concessional super contribution.

Super Investment Strategies for High-Income Earners

If you are a high income earner, your marginal tax rate could be as high as 47%. It means you will be taxed up to 47% on all income from your investments. But no matter how much money you make, you’ll only have to pay a 15% tax on your superannuation account investment earnings.

So, if you have extra savings or extra income that you will only need in retirement, consider making voluntary contributions to super. In particular, concessional contributions can add to your super money and help you pay less personal income tax. Non-concessional contributions, on the other hand, let you put up to $110,000 into super each financial year, but they don’t help you pay less personal income tax.

With the right superannuation and wealth creation strategy, you could potentially have a lot more money when you retire if you invest inside your super instead of outside it. This is because your investment earnings from tax savings will have grown over time, and you can put both concessional and non-concessional contributions into your super.

How to Choose the Right Super Investment?

Your superannuation strategy depends on factors such as age, personal circumstances, preference, and risk appetite.

Time Horizon

There are various reasons for people under 40 to save inside their super, including taking advantage of the First Home Saver Super Scheme (FHSS), retirement benefits, and investment strategies.

While saving for your first house, the FHSS lets you make voluntary superannuation contributions with a maximum 15% tax rate. When you buy a new home, you can take $50,000 of your voluntary contributions tax-free.

Since under-40s can’t access their super for at least another 20 years, they should consider investing actively in a reputable super fund with diversified investments (not putting your money in one asset class). Aggressive investments are riskier and fluctuate, but over 10 years or more, they may outperform conservative ones. If you can handle the swings, this may be better.

If you’re between 40 and 60 years old, you probably have a super balance and want to get the most out of it before you retire. Consider thinking about your superannuation investment strategy in addition to the usual end-of-financial-year strategies, super strategies for couples, and general super strategies for everyone.

Your super investment depends on your risk tolerance and retirement timeline. Ensure you understand diversification, asset allocations, time horizons, and how your super is invested.

If you’re 60 or older, you should be thinking about your retirement. There is an abundance of ways to plan for your retirement, many of which can help you save a lot of money.

Hands-on or Hands-off Investing

Are you a hands-on or hands-off investor? Your preference and personality will dictate how you handle your investments.

Hands-on investors strive to create their dream portfolios. They know investment fees, shares, managed funds, and exchange-traded funds (ETFs) or are willing to learn and devote the time – they commonly work in conjunction with a professional financial adviser to coach them and work to achieve their financial goals.

Hands-off investors like uncomplicated investments. They may need help from professional financial advisers to explain superannuation regulations and options, investment options and manage their money with peace of mind.

super investors

Risk

Your risk profile is based on several things, such as your financial experiences, retirement goals, the kind of retirement you want, and how much time you have to invest.

To understand how super works, knowing how much risk you’re willing to take is essential. Investing based on how much risk you can handle can greatly affect how much money you have later in life, so it’s important to understand it now.

Make Plans for a Super Retirement with Coastal Advice Group

Determining the right super investment strategy for you entails varied factors, including your age, financial situation, financial knowledge, risk tolerance, personality, and personal circumstances.

The help of a financial adviser is immeasurable when it comes to planning your super strategy, even if you have the potential to do it alone.

If you are looking for specialist superannuation advice from a professional financial adviser, Coastal Advice Group is here to help you achieve your dreams and goals. We have offices in Newcastle, the Central Coast, Sydney, Port Macquarie, and Byron Bay. Call us or book online to secure your first appointment with us today and get started!

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