Student Super

Hi Scott,

EmmaI am 18 years old and have just landed two casual jobs, so I need to set up a super account (after finding out that all of my past super from a part-time summer job in 2016 was reduced to $0.14 and then taken by the ATO!). I have several friends who swear by Student Super as it has zero fees for balances under $1,000. What’s your take? I would really like to have super that does not get reduced to nothing again.

Emma

Hi Emma,

Can I just say how much you rock for asking me this question at the start of your career?Seriously, if I wasn’t a daggy father who works in finance I’d do a TikTok dance for you.

Actually, maybe not. So let’s talk money:

You’re right, Student Super do have zero fees for balances under $1,000, which they should be applauded for.

But they need to make some kabana, so after your balance rises to $5,000 you’ll pay $78 plus 0.99% p.a.And that’s way too expensive, especially given you have 50 years or more (!) to compound your money.

It won’t take long to burst through the $5,000 barrier. Student Super knows this, which is why they’re trying to lure you in on the front end ... knowing they’ll make it back big time on the back end.

So, here’s what would be on my super shopping list:

Ultra-low fees … preferably under 0.5% p.a. no matter how much you have in the account.

The option to invest your money into a high-growth index fund.And no life insurance until you have dependents (cats don’t qualify).

Don’t worry about fancy apps or snazzy calculators: so long as your fund continues charging low fees, the less you hear from them, the better. Good luck!

Scott

You’re Wrong, Barefoot!

Scott,

I was not happy with your answer to Rebecca a few weeks ago. You disagreed with her husband, who told her it was “better for us to have control of our money rather than a superannuation company”. If that company was such as AMP, with poor growth, ongoing fees and other rip-offs (as exposed by the Royal Commission), then her husband’s suggestion may have been the better way to go.

Peter

Hi Peter,

That’s like saying:

“You drive a Holden Barina. It’s a terrible car. So instead, you should sell it and ride a horse.”

Who says you have to drive a Barina?

Most people have the ability to choose a good super fund with low fees.

My view is that if you don’t like your super fund you should be looking to move to a better fund rather than flogging a dead horse.

Saddle up!

Scott

My Husband Is After My Super

Scott,

I need your help. I am 31 years old, earning $60,000, and my husband wants me to pull $20,000 out of super (which I can do because of the coronavirus situation) and put it on our mortgage to reduce our interest payments. He is convinced this will make us more money in the long run and that it is better for us to have control of our money rather than a superannuation company. I feel this is risky and do not have much in my super fund as it is. I feel pressured to do this.

Rebecca

Hi Rebecca,

There are a few reasons this sounds whiffy.

First, you should only raid your super as a last resort: if you’re in genuine hardship and you can’t pay your bills.

That doesn’t sound like you.

Second, you don’t want to end up with all your eggs in one basket:

I meet a lot of old people who end up at the end of their life owning their home, but have nothing else to live on. I also meet a lot of older, divorced women who don’t have a home or enough super.

The key to building long-term wealth is to spread your money around: property and shares (through super).

The final thing that stinks is that your husband is pressuring you.

This is your money.

Tell him to back off … but do it over a beer. Take him out on a Barefoot Date Night and show him the steps I lay out in my book: you’ll be making tax-effective super contributions and paying extra off your mortgage in no time!

Scott

Super Strange at Hostplus

Scott

I’m a 27-year-old with my super in Hostplus. I got an email from them talking about ‘unlisted assets’ which to be honest made no sense at all. Can you please break down what this means for me as someone with my super in the Indexed Balanced Fund.

Grace

Hi Grace,

My guess is that they’re talking about their Balanced Fund, which has a lot of unlisted investments (i.e. they aren’t traded on a stock market).

None of this applies to you.

Since you’re in the Indexed Balanced Fund (like me!), you have zero exposure to unlisted assets.

Now, I know the funds sound the same, but they are very, very different beasts.

Let’s compare the pair:

The Balanced Fund has high fees … in excess of 1%.

The Indexed Balanced Fund has very low fees … it’s the cheapest pure play index fund in the country, with fees at 0.05%.

(That’s more than 20 times cheaper.)

The Balanced Fund has 37% of its investments in illiquid investments that are hard to price, and hard to sell in a pinch.

The Indexed Balanced Fund is a very transparent portfolio, made up entirely of index funds, which are priced every business day. There’s a lot of uncertainty right now, but you don’t need to worry about unlisted investments. And that’s because you don’t own any.

Scott

Reminder: I first wrote about this years ago and highlighted the low fees. Today there are cheaper index super funds on offer. How do I know? Because my readers constantly email me about them! So before you do anything, go to YourSuper.gov.au and compare super funds first.

Too Broke to Go Broke

Dear Scott,

I am one of those ‘bastard bosses’ you talk about — I am still about $40,000 behind on my employees’ super (including mine — I have not paid myself any super, ever). I am also going broke. After six years of trying everything to stay afloat, including selling all my personal assets, my company ceased trading at the end of last month.Now I am trying to work out what the hell to do from here. By the time I liquidate what’s left, there should be enough to pay out the employees’ super, but there will still be about $150,000 in debt, mostly to the ATO. I’ve been advised to hire a liquidator, to do things correctly and end up with more to pay to their super, but I have been told it will cost about $15,000. I know it’s all on me — but do you have any advice on what I should do next?

Simon

Hi Simon,

I don’t think you’re a bastard boss -- you gave it a go and you couldn’t make it work. Fact is, more than 1,000 small businesses go broke each week in Australia, according to data analysts Illion.

One option you have is to pay your employees their super, directly into their funds, with any money you have left.

As for the ATO, there are two ways to go: appoint your own (expensive) liquidator, or wait for the ATO to eventually appoint their own. And if it works out that you’re personally liable, then really your only option is to negotiate a settlement with the ATO, or declare bankruptcy. My take?

The person who told you to see a liquidator was bang on. If you don’t, there’s a risk that you’ll open yourself up to even more trouble. It’s time to let the nightmare play out.

Scott

Living the ING Life

Hey Scott,

Long time reader, first time asker! I would love your thoughts on ING's latest superannuation offering — ‘Living Super’.

Stephanie

Hi Stephanie,

Not much.

It’s kind of like walking into your local pub and choosing between the 35 craft beers they have on tap.

They all have flashy logos and pompous names, but they all taste pretty much the same. Yes, ING allows you to buy individual shares, but industry funds offer the same thing.

And, while their portfolios are made up of sensible index funds, they’re really not that cheap.

(When you’re buying index funds, cost is one of the major factors.)

Bottom line: there are cheaper, and better, products out there in my opinion.

Case in point: arguably the best fund manager in the world is the not-for-profit Vanguard, and they’ll be coming out with their own super offering later in the year.

Hold my beer!

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

My Super Crappy Boss

Hi Scott,

I feel like everybody learns to check their super the hard way — by not being paid it at some point thanks to a super crappy boss. I am a 22-year-old uni student and have mostly had hospitality jobs while studying. I have in fact done two years of hard work with no super, thanks to the slimy owner of one of those neon-coloured hole-in-the-wall doughnut shops (that Instagram is so obsessed with).

I contacted the ATO, I contacted the Fair Work Ombudsman, and I even maintained contact with the boss himself after I rage-quit. In the end I lost my time as well as my money. The company just ‘phoenixed’ (went bankrupt, started a new company, then ‘bought’ the restaurant from the old company free of super debt). Scott, after you have got banks out of schools, the next thing you should throw your weight behind is stronger punishments for super theft.

Kelly

Hi Kelly,

Since last week’s column, I’ve been inundated by people telling me similar stories to yours, and a lot of them are young people working in hospitality. It seems there really are a lot of crappy bosses out there.

To add some salt to your doughnut, I should point out that you didn’t just lose two grand. From age 22, with compounding over your lifetime, that money would have grown into tens of thousands of dollars!

And that’s why this theft — and that’s what it is — needs to be stamped out.

I also don’t understand why the Government is offering a no-questions-asked amnesty on bosses who haven’t paid super. I guess some employees might receive a bit of what they’re owed, but I reckon it sends the wrong message.

The people I feel for — apart from you, of course — are the honest business owners who are doing the right thing, paying their staff the correct wages and super, yet are competing with the likes of George Calombaris. Now that’s a doughnut.

Scott

Time for a Super Shakeup

What I’m about to share with you could possibly be the biggest change to superannuation since I wrote my book, The Barefoot Investor: The Only Money Guide You’ll Ever Need, a few years ago.

But first, a cute analogy to explain how Aussie super works:

Retail super funds, those owned by the banks and AMP, are the financial equivalent of Facebook. We all signed up for them years ago before we had a clue, then gradually worked out that they made their money by digitally shagging us — so they’re now well and truly on the nose.

Industry funds, on the other hand, are like Instagram: they’re just so hot right now. Post the Royal Commission, billions of dollars are flowing their way as people switch out of expensive retail funds.

The problem is that, when it comes to fees, all super funds are about as genuine as an Instagram selfie:

#it’s-not-all-about-fees-barefoot!

And, as a result, Australia has some of the highest investment fees in the world.

Yet this week the game changed: the world’s largest index fund manager, Vanguard, announced its intention to set up its own super fund Down Under.

Why is that such a big deal?

Because Vanguard is known as the ‘Amazon of finance’. The index fund pioneer is no pouty Instagram influencer: it has a history of aggressively, and relentlessly, lowering its fees. (Case in point: over the past decade alone, Vanguard Australia has cut its fees more than 25 times.)

Bottom line?

It’s high time for a super revolution, and my hope is that Vanguard helps deliver it. I’ll be watching closely to see what they come up with, and I’ll let you know what I think when they do.

Tread Your Own Path!

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

All My Eggs in One Basket

Hi Barefoot,

Following your recent post about expensive super funds, I had an appointment with a financial advisor at First State Super, where my fund is held. After doing a ‘risk report’ on me, the advisor suggested I essentially ‘put all my eggs in one basket’ by investing 100% in high growth. I am in my mid-thirties with a hubby and three kids under five. My question to you is: would you put all your eggs in one basket?

Emma

Hi Emma,

I actually think this is good advice.

I’ve said the same thing in my book: young people should be in high-growth super offerings.

I took a look at First State’s High Growth Option, and it has:

• 30% invested in Aussie shares (think CommBank, CSL, Woolies and a couple of hundred other companies)

• 37% invested in international shares (think Facebook, Apple, Nike and over a thousand other companies)

• 30% invested in unlisted assets (like the Sydney Convention Centre and various hospitals and other large projects)

• 3% in cash.

So, while it’s true that you’re investing in growth assets, it’s not like you’re putting all your eggs in one investment.

Emma, you have at least 30 years before you can access your super — that’s more than enough time to ride out the temporary dips of the share market. In fact, the biggest risk you face is not having your money in high-growth investments at all.

Scott

Don’t Go Changing

Hi Scott,

In last Sunday’s column there was a paragraph that read “Scarface Claw is in this instance OnePath/ANZ ... who have some of the worst performing Super Funds”. I have to say this scared the hell out of me as I have just done a transition to retirement with this specific fund you mentioned. I am 65 now and am topping up my Super with some of my pay other than the work contribution. Should I be concerned, or ride it out?

Wendy

Hi Wendy,

Your email reminds me of a friend of mine who married an ocker knockabout Aussie bloke who spends his free time sitting on the couch, drinking beer, and watching sport. She’s still holding out that one day she’ll arrive home from work and he’ll be watching the Bachelor, and drinking a bottle of Kombucha. It ain’t going to happen.

Similarly, ANZ/OnePath have consistently topped the FatCat Fund list of having the worst performing funds. Every year, for the last seven years! According to StockSpot, who compile the data on funds, they control almost a third of the worst 40 performing funds.

Faced with this dubious award, year after year, you’d think that ANZ would have woken up to themselves, and stopped picking the pockets of their customers with high fees. They haven’t.

Scott

A Hairy Problem

Hi Scott,

Your latest column about Hairy Maclary and expensive super funds really put the cat among the pigeons in our house. Our financial adviser (who we like) has us with AMP (among a slew of other retirement-related accounts), and we are finding it hard to see through all the smoke and mirrors to get to the fees so we can feel secure. Can you suggest a few questions that are polite but will still get us to the information we need?

Chris

Hi Chris,

Would you let your plumber charge you an extra $1,000 to fit a tap simply because he asked after your grandkids?

Of course you wouldn’t!

Yet the fact that you’re having to “see through all the smoke and mirrors to get to the fees” tells me that you need to get out the planner plunger … your thinking is blocked!If I were in your situation, I’d write him the following email:

Dear (advisor’s name)

I was reading the newspaper the other day and I was shocked to read that the majority of funds underperform the averages each year. That made me think that I should contact you and ask how all my funds are going. So can you please do the following three things for me:

1. Print us a statement that clearly shows my annual percentage return since we began, net of fees.

2. Benchmark our return against the relevant accumulation index for the same period.

3. Provide me with an itemised list of fees (expressed in both dollars and percentages). Include any and all ongoing fees, commissions and administrative costs that I’m charged.

After we have this information, it would be great to sit down and discuss it all.

Chris

I’m sure you’ll find his reply surprising, especially to question two. My view is that the best way to boost your investment returns is by lowering your costs. If your advisor is working in your best interests, he’ll agree with you. The only reason the conversation will be awkward is if he’s not!

Scott

A super fund option with ZERO fees?

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!

Reminder: I first wrote about this years ago and highlighted the low fees. Today there are cheaper index super funds on offer. How do I know? Because my readers constantly email me about them! So before you do anything, go to YourSuper.gov.au and compare super funds first.

Could We Lose All Our Money?

My husband and I are working through your book, but we are stuck at the superannuation chapter. We both work for the Queensland Government and have our super in the QSuper Lifetime Aspire fund. The fee is 0.9%, which is just above your recommended 0.85%. QSuper feels ‘safe’. If we changed to another fund, can we be sure we are guaranteed by the Government? Could we lose all our money?Thanks,

Merryn

Hi Merryn,

Let me clear this up: you are not guaranteed by the Government if you lose all your money in super. (That only happens with money you have in the bank -- see the question above.)

Instead, your superannuation fund is a trust, and the trustees of the fund are legally obliged to act in your best interests (as the Royal Commission has shown, some do a better job of this than others). QSuper appears to be doing a good job: they’re a not-for-profit industry fund that charges competitive fees, and they have a decent track record.My advice would be to call up the fund and request to sit down with one of their advisors, and have them help you select the most appropriate asset mix within your current QSuper fund. Why? Well, a Vanguard study showed that 90% of your returns comes from the asset allocation you choose. Make that your focus.

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

Boost My Super Just By Shopping? SuperSuper!

Hi Scott,

I am hearing a lot of advertising for SuperSuper ‒ a shopping rewards program that pays rewards directly to your super account with GuildSuper. It’s targeting women, enabling us to boost our super balances by doing nothing different ‒ we are shopping anyway! What are you thoughts on this?

Louise

Hi Louise

I actually heard SuperSuper advertised on the radio, and my first thought was:

“Well, this sounds like the financial equivalent of a Spice Girls song.”

Girl Power! Yeah! We can shop and save for our super!

So I’ll tell you what I want, what I really, really want.I want a super fund that doesn’t zig-a-zig-ah: GuildSuper has underperformed an average super fund over 1, 3, 5, 7, and 10 years, according to Superratings. I assume this is because their fees are a little, shall we say, Scary Spice. At 1.38% per annum plus $95 a year.

Bottom line? Any money you save from their slick shopping campaign, you’ll give back in higher fees and lower returns (and then some).

So, if you want to be my (super) lover, you’ve got to get with my plan.By all means score rewards from shopping, but you don’t need GuildSuper to do it (though hats off to GuildSuper for making it super … simple).

All you need to do is Google “Woolworths discount cards” and you can get 5% off your shopping. (Tightarse tip: most retailers offer these discounts if you buy their gift cards or e-vouchers … because they bank on a certain percentage of people losing the cards or forgetting about them, and they’ll pocket the money.)

Then, take your savings and make a contribution into an ultra-low-cost index super fund.

Spice up your life!

Scott

Is AMP Heading South?

Hi Barefoot,

On advice from our financial adviser, my wife and moved our super from Australian Super to AMP MyNorth Super a year ago. We have generally been happy with the advice we have received and, like all funds, in the past year MyNorth has had its ups and down. However, with the findings of the banking royal commission and recent stock market volatilities affecting AMP, we think we should maybe go back to the industry fund. Is it likely AMP could go under in future, meaning we could lose all our super?

Cliff

Hi Cliff,

I’ve had a number of people ask me the same question ‒ whether their money is safe with AMP.

Let me be clear: your money is safe.

That’s because the money you have in super is held via a legal trust for you. ‘(and this applies to AMP as much as any super fund)’. Super is strictly regulated, and the trustees have a legal duty to manage the fund for the benefit of members.

However, the same can’t be said for the suffering AMP shareholders.

The very fact that so many of its customers are questioning whether this 170-year-old blue-blooded company will survive is an indication of just how much the brand has been battered.

As Dr Phil says, it’s hard to win back trust.

Speaking of which, I’d ask your advisor to do a financial comparison between your old industry fund and your MyNorth fund since you switched.

Scott

Super Stressful

Hi Scott,

I am 27 and earn $95,000 a year, so my super is adding up. But I received my annual superannuation statement and found I am being charged three separate fees: administration fees (0.37%), investment fees (0.25%) and something called ‘indirect costs’ (0.64%). In your book you recommend paying no more than 0.85% in fees on super: does that refer to any type of fee charged, or only administration and investment fees? And do you have any idea what indirect costs are?

Lisa

Hey Lisa,

Good on you for being one of the few people who bothers to look at this stuff.

ASIC defines ‘indirect costs’ as costs “paid by your super fund to external providers that affects the value of your investment. Typically these are costs paid to investment managers.”

Bottom line? It’s another fee. All up, you are being slugged 1.26% of your balance each year.

If you’ve currently got $40,000 in super, that’s around $500 a year.

That doesn’t sound like much.

Yet, as a back-of-the-envelope calculation (6% real return, not factoring in tax), your super will grow to around $720,000 over the next four decades. However, the negative effect of the compounding fees will be roughly $220,000!

You’ve done the hard work by wading through the complicated, boring guff. Now comes the most profitable call you’ll ever make: call your fund and ask them if they have a high-growth, low-cost index super offering ‒ preferably one that charges less than 0.85% in fees, total.

Scott

Is your money in one of these ‘fat cat’ funds?

2018’s Top 10 ‘Fat Cat Funds’

I once knew a very rich guy in his sixties who prided himself on ‘calling a spade a spade’.

“You’re fat!” he once said to a bloke we’d just been introduced to.

“Hey!” I said, coming to the poor guy’s defence (while simultaneously sucking in my gut).

“What? It’s the truth! Look at him! He’s a prime candidate for a heart attack!”, he said (while the guy seemed to be having heart palpitations).

“You need to look after yourself. I’m telling you this for your own good”, he said condescendingly to the stranger.

True story.

(And also true that, ironically, he was himself built a bit like Shane Warne ‒ circa 1993.)

Anyway, my wife says that sometimes I behave like him when she wheels me out in social settings ‒ the only difference is that I’m brutal about people’s financial flab.

Case in point: a while back at a BBQ, a guy I didn’t know struck up a conversation with me (the token finance guy) by saying he had his super with what I knew to be a high-fee fund. He wasn’t asking for advice, just making polite conversation on a Sunday afternoon.

“What on earth made you go with them?” I asked, head cocked, eyebrow raised.

But before he could burble out an answer I said: “I mean it’s just a stinker of a fund.”

As I type, I’m literally cringing at reliving this moment.

My wife’s right: no one wants to talk about personal stuff with strangers in a social setting.

But, hey, it’s just you and me sitting here, and we’re old mates … so let’s say we poke a bit of fun at a few flabby funds.

Last week, investment group Stockspot came out with their annual Fat Cat Awards, which ranks the worst-performing super funds.

Stockspot Fattest Funds 2018

Each year the finance industry gives out thousands of awards to itself, but this is one award you do NOT want to win. Here are the Garfields of the game ‒ who’ve been effectively stuck in the cat-flap for the last five years licking the cream off your returns:

1. OnePath Masterfund ‒ OnePath Tax Effective Income Trust

2. OnePath Masterfund ‒ OptiMix Moderate Trust

3. OnePath Masterfund ‒ OptiMix High Growth Trust

4. OnePath Masterfund ‒ OnePath Balanced Trust

5. Perpetual WealthFocus Superannuation Fund ‒ Perpetual Diversified Growth

6. AMP Superannuation Savings Trust ‒ BlackRock Global Allocation

7. Queensland Independent Education & Care Superannuation Trust ‒ Conservative Growth

8. Labour Union Co-Operative Retirement Fund ‒ Targeted Return

9. AMP Superannuation Savings Trust ‒ Future Directions Moderately Conservative

10. StatePlus Retirement Fund ‒ Balanced

Source: Stockspot

What do all these crazy cats have in common?

They all charge high fees, presumably to pay for all their expert fund managers.

(Oh, and the ‘top four’ are all brothers from another mother.)

Now, if you’re a Barefooter you’ll know I’m a skinny cat who likes index funds (i.e. low-cost funds that mechanically track the stock market, rather than being actively managed).

Guess what Stockspot found?

“Over the past five years we found only 4% of balanced funds beat an index fund. And across all investment categories only 13% of funds beat the indexed option”, adding that this is a global phenomenon in which “actively managed funds have been unable to match low-cost indexed options”.

Faced with this research, they came to a beautifully simple conclusion. They say there are only two things to consider when choosing a super fund: first, find the right type of fund based on your capacity to take risk. (Which Barefoot decodes as “anyone under 40 should go for growth, anyone over 40 should find a bit more balance”.) Second, choose the fund with the lowest fees. (Which is the exactly the recipe I follow in my book.)

So, if you’ve read this far and are thinking to yourself “maybe I’m getting licked”, by all means get in touch with your fund and call a spade a spade.

Tread Your Own Path!

Should I Go to Cash in My Super?

Dear Barefoot,

I am a single working woman, 61 years old, planning to retire in five years. I am now wondering if I should be concerned about my superannuation reducing with the recent share market losses. If it is going to crash again, should I be moving to cash rather than shares?

Susan

Hi Susan,

I totally get how stressful it must be.

The truth is that -- if a share market crash coincides in the years leading up to or proceeding your retirement -- it can have a devastating impact on your plans.

Right now, your super contributions are most likely going into a share investment option.

However, I’ve always said that in your last few years of work you should divert some of those super contributions, into a cash or fixed interest option within your super.

How much?

Well, that’s up to you (and your advisor). However a good rule of thumb is having a minimum of two years’ living expenses (less any age pension you’ll receive).

Now, let me be James Blunt: the biggest risk you face isn’t the short-term wobbles of the share market -- it’s running out of money before you die. I see people who find themselves in this situation all the time, and if they’ve given up working there’s nothing they can do.

Susan, right now you have the power to change things. It’s not too late. So make an appointment with your super fund’s financial planner and work out how much you need to retire on. Get a figure to aim at. And hit it.

Scott

How to get your gouged super back

Did you know you have a one-in-three chance that you could be owed thousands of dollars?

It’s true.

This week law firm Slater and Gordon announced they’re launching Australia’s biggest class action:

“The Royal Commission into banking has revealed that if you've been a member of a big bank-owned superannuation fund (or AMP) then your retirement savings may have been gouged for years. We believe you can and should get your super back.”

Giddyup!

In fact Slater and Gordon reached out to me personally this week to see if I would “promote this to my networks”.

Consider it done!

So, what do I really think?

Well, I think if there’s a group I trust even less than finance executives … it’s ambulance-chasing lawyers.(Never get between either of them and a bucket of your money.)

And so with “clowns to the left of me, jokers to the right …

Here I am, stuck in the middle with you.”

Slater and Gordon are suggesting there are five million Aussies who have been shafted by their retail super funds (my words), for a total of up to $1 billion (their words). They’ve set up a website where you can register to getyoursuperback.com

**Less their hefty legal fees, of course.

And if you genuinely believe you’ve been screwed ‒ most notably because you’ve invested your super in low-earning cash options (though I simply can’t believe that can be too many people?!) ‒ well, yes, you should sign up to the class action.

After all, why not?

“Ya got to be in it to win it, son”, advises Bluey at my pub (a man who admittedly will drink from the drip tray because he’s so broke from punting.)

However, let’s get a few things straight.

First, there is nothing new about bank-owned funds underperforming their peers. Since super began, AMP and Commbank (and other bank-owned retail super funds) have, on average, charged high fees and delivered members low returns.

(In fact, I wrote about it in 2016 in my book. An old bloke named Frank, from Bendigo, was (legally) gouged with fees by AMP for tens of thousands of dollars over his working life. I suggested the least he could do was to ask the AMP CEO to mount a plaque at AMP HQ’s toilet saying “This urinal was paid for by Frank from Bendigo’s super”.)

Second, paying high fees on your super is the easiest way to rob yourself of a secure retirement.

Yet get this: around 82 per cent of the Aussie market is invested in high-fee, actively managed funds, rather than in the low-fee index funds I recommend.How’s that working out?

“Active fund managers let investors down”, was the headline in the Australian Financial Review this week.

“Most Australian active fund managers in a majority of categories failed to beat their benchmarks in 2017‒18, lending more ammunition to the case for passive [index] investing.”

Vanguard’s Robin Bowerman said: “I don’t think anyone is surprised by the results. Active underperformance is less about the investment style and more about the high costs. In investing, the more you pay, the less you get.”

Touché!

So, my final piece of advice is this:

By all means join the class action if you think you can claw back some money.

But that’s all in the rear view mirror.

For the future, keep your eyes on the road and your hands upon the wheel.

Don’t rely on the regulators, or your super fund, or lawyers, to look after you.

Instead, do what Frank didn’t, and ask your super fund whether you’d be better off having your money invested in low-cost, passively managed index funds.

Tread Your Own Path!

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

Boxing at Retirement Shadows

Hi Scott,We read your book and loved it. However, we got a little confused near the end when talking about superannuation approaching retirement (which we hope to do in two to three years). My husband and I are each putting away extra super to bring it to 15%. Does the entire 15% need to go in as cash, or just our extra contribution over our employer payments? And will HESTA do this for us?

Mary and Phil

Hi guys,What haunts me is the letters I received back in 2008 from people just like you.They were on the cusp of retirement, and then the Global Financial Crisis pummelled their portfolios.Finance professors call this ‘sequencing risk’. Yet it’s really just bloody common sense: if you’re retiring you should have enough money to ride out a downturn without having to be a forced seller.As Mike Tyson says, “Everyone has a plan, until they get punched in the mouth”.Well, that’s why I believe it’s prudent to build up a cash buffer in the final years before they retire. I like three years of cash (minus any age pension payments). Though I’m conservative.You should call your super fund and ask to speak to one of their financial advisors, who can help you structure your super, so the market doesn’t land a killer blow this close to the final round.

Scott