Scott Pape: This is how to invest ethically within super

The term ‘ethical’ is about as loose as an over-28s nightclub, so you need to dig in and see what your super fund is actually investing in, says Scott Pape.

Scott Pape is The Barefoot Investor. Picture: Supplied

Wally, my long-suffering editor, knows he has a hot question when it’s written in ALL CAPS.

Here’s one that landed last week:

“AM I FUNDING THE INVASION OF UKRAINE?”

Wally leaned in … and it went on … and on, and on, and then took some weird tangents about Bill Gates. (Why is it always about Bill Gates?)

Anyway, the gist of the person’s question was this: he didn’t want his super to be funding war criminals (or Windows 97).

And fair enough too!

Yet, while I’ve got the tin-foil hat on, let me tell you that for well over a decade the super industry fought tooth and nail against laws that required them to disclose to investors where they were investing their money.

“Seriously, just trust us, we’re good guys!” Uh-huh.

Thankfully, the disclosure laws have now been passed, so you can see where your money is invested.

Here’s the deal. There are two ways to invest ethically within super: by choosing a dedicated ethical fund, or by selecting an ethical investment option within your existing fund.

Just understand a couple of things: first, the term ‘ethical’ is about as loose as an over-28s nightclub, so you need to dig in and see what they’re actually investing in, and whether it fits with your worldview.

Second, the fees for ethical funds and options are often much, much higher than for general investment options … which will eventually detract from your returns.

Regardless, there’s a very good chance your super fund has dumped any Russian assets it was holding. Since the start of the crisis, most funds have written off hundreds of millions of dollars of Russian investments. Yet the only way to be really sure is to call your fund and ask them.

Tread Your Own Path!

The fees of ethical funds are much higher and eventually detract from your returns.

Bill now, Pay Later?

Hi Barefoot,

As I was scrolling through my Facebook newsfeed drinking my morning coffee, I spotted an ad for Deferit. There are lots of ‘buy now, pay later’ schemes these days, but this is the first I’ve spotted for paying bills and splitting them into instalments.

Although I don’t use these types of services myself, I know a growing number of people who do — so curiosity got the better of me and I had a look at what they claim to do. They claim to have no interest or late fee charges. They pay your bill up front and get you to pay it back in four equal fortnightly instalments. It appears they only charge a monthly fee when you utilise their service. My question is: is it really that transparent or is there a catch? Sarika

Hi Sarika,

They’re basically Afterpay with a different logo.

Yet, instead of splitting $150 to get some bro-tox (why should the ladies have all the fun?), they’re suggesting you do it with your day-to-day bills.

Ding! Ding! Ding!

All these fintech bros have convinced themselves they’re saving the world. Heck, Afterpay still claims they’re a ‘budgeting app’, and so does Deferit.

Bulldust!

Financial counsellors might suggest you negotiate a short payment plan with your billers if you can’t pay on time.

They’re out for themselves. The reason they encourage people to use money to pay for things is because their business model relies on it.

True budgeting advice – say, from a free financial counsellor – would get to the guts of the matter by sitting down with you, working through your budget, and looking at your capacity to pay your bills.

And this may reveal that you’re in over your head and need more than a fortnightly bandaid. Or it may help you negotiate a short payment plan with your billers so you can pay your bills with cash on time. And that will allow you to stand strongly on your own two feet.

I’m Dying to Leave

Hi Scott,

My sister was unfortunately diagnosed with a terminal illness three years ago – added to that, she now wants out of her marriage. Suffice to say it is not a healthy environment for her to be in. Her three children are all at university and have part-time jobs, but my sister (who was a nurse) really can’t do much anymore. She would leave her husband but is worried that he would string out selling the house for 12 months, and she wants to travel while she can.

She has a lot of superannuation but has been told she can’t access it until she has 24 months to live. Seriously, how does anyone know this without a crystal ball? What can she do to get some of her super, as it is her money? Nicola

Hi Nicola,

What a heartbreaking situation.

Your sister is battling a life-threatening illness, a divorce and financial issues, all at the same time.

For her the clock is ticking, and she understandably wants to get out and live while she still can.

So you should encourage her to see a family lawyer immediately. You could go along to the meeting with her, and consider offering to be her Enduring Power of Attorney (POA). That way you can deal with the boring details while she gets on with living her best life.

She should also consider updating her will to bypass her husband, if she chooses to leave him. It’s usually a 12-month journey to get a divorce, but the property settlement can be done at any time. Again, see a lawyer: they can provide advice, while you can provide love and support to see her through.

Good luck.

From Homeless to Hero

Hi Scott,

I’m a single woman in my fifties. Not long ago I was homeless and in debt. Then I came across your book, read that apparently “I’ve Got This”, and was determined to get myself out of the hole I had dug for myself. And I did. A couple of years on I have paid off my credit card debt, triumphantly (quietly) phoned my bank to close that account, signed a lease for a very beautiful home, bought $10,000 in ETFs, and saved $15,000 in Mojo (which gives me a huge sense of peace and freedom while I am between jobs and have no income).

A big, warm thank-you for giving me and so many others such strength and hope, without shame and guilt for being in a financial mess. Now I am wondering what people like me, who don’t have enough life left to accomplish ‘Step 4: Buy Your Home’, should do.

Or have I got this too? Sarah

Around 400,000 women over the age of 45 are at risk of homelessness, according to a report from Social Ventures Australia.

Hi Sarah,

Before I get into your question, let me address the elephant in the room.

Some people would be reading your story and be shocked that you could be homeless.

However, you and I know that it’s actually pretty normal. In fact, around 400,000 women over the age of 45 are at risk of homelessness, according to a report from Social Ventures Australia.

Why?

Because older women who don’t own a home and have very little savings often end up falling through the cracks, and don’t even have access to social housing.

So should you consider taking up the Government’s Help to Buy scheme and buy with just a 2% deposit?

Heck, no!

By all means keep saving like a woman possessed. And who knows — when the time is right, you may be able to afford to comfortably buy your own home. Understand that you have already achieved financial security against all the odds … so never trade it away.

Finally, it’s human nature to forget how far you’ve come.

You went from being homeless to being debt free, owning shares and having an emergency fund behind you. Stop for a moment and celebrate it. You, Sarah, are incredible!

Keep going, you got this!

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need

(HarperCollins) RRP $29.99

If you have a money question, email [e-mail].

Originally published as Scott Pape: This is how to invest ethically within super