I have been taking you out for Date Nights (well, your book) and I am up to Date Night Number Two, which is getting my super sorted. There’s a problem, though. My ex-boyfriend has said I should not follow your recommendation on the Hostplus Indexed Balanced Fund. He says that it is not diversified enough, that low fees are only one factor when deciding on super, and that there are better-performing funds available. My super is currently with Asgard. What are your thoughts?
I actually swiped my super fund strategy from legendary investor Warren Buffett.
Let me explain:
When Buffett dies, he’s investing his entire estate on behalf of his wife as follows: 10% into short-term government bonds, and 90% into an ultra low-cost S&P 500 index fund, which automatically tracks the 500 largest companies in America.
Your ex-boyfriend’s claim that the Index Balanced Fund “is not diversified enough” is absurd.
The fund invests as follows:
35% in 200 of the largest businesses in Australia — like the banks, BHP, Rio, Telstra, Woolies and CSL.
40% in 1,582 of the world’s largest businesses — like Apple, Facebook, Google, Nike and Nestlé (and the portfolio is partly hedged to protect against currency fluctuations).
15% in fixed interest.
10% is in cash.
That’s better diversification than Mrs Buffett will get!
Here’s you: ‘Yeah, but what about property?’
Here’s me: ‘Most Aussies have the bulk of their wealth tied up in very expensive residential property, so it makes sense to balance that out by investing in local and global businesses’.
Here’s you: ‘Yeah, but low fees aren’t everything. I could get better returns …’
Here’s me: ‘The Hostplus Indexed Balanced Fund is the lowest cost super fund in the country, and one of the lowest cost funds on earth. It’s pretty simple: the less fund managers take, the more you make’.
Here’s you: ‘Yeah, but what about other funds that get superior returns?”
Here’s Buffett: “I believe the long-term results from (investing in low cost index funds) will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers”.