If you’ve been reading my stuff for a while, you’ll know I bang on – a lot – about minimising your super fees.
Well, today I’m going to tell you about a super fund that has zero fees. As in a donut.
From the get-go of my career, I’ve advocated that people should invest in low-cost index funds for their super. (An index fund simply tracks the market by automatically investing in, say, the top 300 companies on the market).
And I have put it on record that I invest my super with Australia’s lowest cost index super fund, the Hostplus Index Balanced Fund.
This has opened me up to criticism that I’m biased towards Hostplus, yet my answer has always been the same:
I have no axe to grind, it’s simply about getting the lowest fees.
The long-term evidence is clear:
If you’re investing in anything other than a low-cost index fund, you’re likely to be a loser.
Ratings agency Standard and Poor’s (S&P) has tracked over one thousand managed funds and ranked them against a simple, low-fee index fund over a 15-year period.
Almost nine in ten (87 per cent) international share funds failed to beat a simple low-cost index fund.
Almost eight in ten (77 per cent) Aussie share funds underperformed a simple low-cost index fund.
Faced with this overwhelming evidence, investors the world over have embraced index funds.
It’s not even debated any more … except here in Australia.
We’re like the flat-earthers of the finance world, openly questioning the ‘lower fees equal higher returns’ argument.
And the result is … last year Aussie super funds swiped $32 billion in fees, which over the long term robs future retirees of hundreds of thousands of dollars from their nest eggs.
ASIC has been trying to force fee-gouging super funds to give investors more transparency on the fees we pay, yet this week it was delayed again … thus far it’s dragged on for almost six years!
(No surprise there: Warren Buffett has sagely warned, “Remember, your fees are their income”.)
Anyway, of the thousands of super funds on offer, only a surprising few offer low-cost index funds, like Hostplus does. And I’ve always said that the day another low-cost index fund came onto the market, I’d let you know about it too.
Well, today is that day.
This week REST Super launched a suite of index funds that have 0 per cent fees:
- Australian Shares Index Fund – which tracks the 300 biggest companies in Australia (think the banks, Woolies, CSL, Sydney Airport).
- Overseas Shares Index Fund – which tracks 1,576 of the biggest companies in the world (think Amazon, Alphabet (Google), Berkshire Hathaway, and Toyota … though no tobacco stocks, which this fund has chosen to strip out). Dividends are reinvested in Aussie dollars.
- Balanced Index Fund, which consists of 30 per cent Australian shares, 45 per cent overseas shares, 20 per cent bonds and 5 per cent cash.
(Technical point: REST is using Macquarie Bank’s True Index funds, which use derivatives to manage their portfolio. REST say they have done their due diligence and are comfortable with the risk.)
Let’s be fair dinkum though … nothing is free (except my wife’s apricot chicken casserole … and that has its own risk profile).
So how can this fund be free?
The answer is, it’s not. The investment fee is zero, that’s true.
However, REST also charges an administration fee, which is $67.60 per year plus 0.10 per cent of your super balance per year (capped at $800 per annum).
Still, it’s very cheap.
Of course, before you switch to this (or any other) fund, I’d suggest you speak to a professional and get personal advice. Just make sure you’re speaking to an advisor who puts your interests first, and advocates low-cost investing.
Tread Your Own Path!