Scott Pape: now is a good time to talk about your super fund

There is a simple and elegant solution to help super fund members survive stock market crashes, says Scott Pape.

We are well overdue for a stock market crash.

They happen, after all, on average every 10 years, and the last one (discounting the Covid-induced flash-crash) was 14 years ago.

And I still have PTSD from the GFC. People on the verge of retirement wrote to me in tears as they watched the value of their super dissolve in front of their eyes. They had no idea how much risk their super fund was taking … until the market crashed.

So now is a very good time to talk about what’s going on with your super fund. And a word of warning: it’s not good news if you’re in one of the large, top-performing funds …

New research from SuperRatings has found there is a “high risk at retirement” for many of the current top-returning super funds.

Huh?!

Aren’t we supposed to pick a super fund with high returns? So what makes these funds so risky for older workers?

Well, it’s generally because they are invested more aggressively than the funds they’re competing against. That is, after all, how they get to the top of the performance tables: by taking more risks.

Big super funds often throw investors in a one-size-fits-all pot, says Scott Pape.

There is no free lunch in finance, so tattoo this on your arm: “The higher the returns, the higher the risks!” Of course, taking on more risk is fine for a 17-year-old apprentice … but it’s not so sweet for a 64-year-old chef.

Still, that’s how most of our biggest super funds roll: they throw everyone – young and old – into a one-size-fits-all investment pot.

However, there is another type of super fund. It’s called a ‘target date super fund’.

These super funds invest based on your age. In simple terms, they automatically reduce the amount of riskier assets, like shares, in your portfolio as you get older and closer to retirement.

It works like this: our 17-year-old apprentice would start out aggressively invested in shares to build her nest egg, and then throughout her working life the fund would gradually – and automatically – become more conservative to protect her nest egg by beefing up her defensive assets like cash and fixed interest as she nears retirement.

It’s a simple, elegant and almost set-and-forget solution.

I say ‘almost’ because most of the current funds have their target date set at age 65, when you retire. (If I was a cynic I’d say it’s set at that age so you go see a financial planner.)

Enter Vanguard Investments.

Last month they received regulatory approval to launch a super fund. They’re still fine tuning things, but later in the year they expect to launch a target date index super fund that will automatically adjust your portfolio all the way through to your 85th birthday.

The older I get, the more I value simplicity in my life – especially when it comes to investing.

I don’t like my returns being eroded by high fees, so I invest my super solely in low-cost index funds.

And I really like the idea of not having to meddle with my super as I get older.

So let’s hope the top-performing funds – who collectively invest for millions of Aussies both young and old – take heed of this new type of offering and build something even better for their members.

Tread Your Own Path!

Disclosure: I invest in some Vanguard index funds but not their super fund (because it doesn’t exist yet!).

Buy now, pay later stocks have been a poor investment for many. Picture: Brent Lewin

You’re a Kettlebell, Barefoot!

Hi Scott,

Not a question, but I remember you writing a piece warning against investing in F45 (just checked the year, it was 2017). I have never forgotten that, and just came here to say you were right! I remember you also being correct in your predictions about the prices of apartments in the Melbourne Docklands area collapsing, a few years before it happened.

Linda

Hi Linda,

I just got lucky, that’s all. Years ago I wrote that I wouldn’t invest in buy now pay later (BNPL) companies like Afterpay because they didn’t make any money and I couldn’t see how they ever would.

… And then the share price of Afterpay, ZIP and the like rocketed to the moon!

Today, BNPL companies have continued haemorrhaging cash, and collectively their share prices are down by as much as 90 per cent.

Look, anything I write is common sense (which isn’t as common as you think) and conservative (which is why I’m not popular with the TikTok crypto crowd).

Still, I’m like a broken clock: I get it right a couple of times a day!

She’s Got a Ticket to Ride

Hi Scott,

We started following your advice in 2017. Thanks to you, my just-turned-16-year-old daughter has been working for a couple of years now and has paid for her little second-hand Barina with her own money. I was about to finally set up her own bank account too … but ING Youth Saver is no longer available. I have no idea what bank to use and I’m nervous about which account to choose. Any suggestions?

Kerry

Reader Kerry’s 16-year-old daughter has bought a car with her own money.

Hi Kerry

Seriously, how proud does she look? And how proud are you, Mumma? Good job!

Yes, it sucks that ING has punted their kids’ accounts (then again, ING have been doing quite a lot of sucky things lately). Yet if your daughter can save up and buy her own set of wheels she’s more than capable of finding her own account — with no fees, and a decent savings rate. She’ll be able to set one up in a few minutes flat.

The bigger win is to encourage her to funnel her newly formed savings skills into the share market. My soon-to-be-launched book teaches kids how the share market works, and even how to select their own investment account!

A Letter from the Outside

Dear Scott,

Your column on the “letter from someone on the inside” of family violence really struck a chord with me. I lived it myself, being married for 17 years. I started your book about three years before I left my husband and, just like you said, he refused to be part of it, so I did Date Nights all by myself. This was a red flag to me and I am so glad you told your readers about this issue. Please let that woman know that it’s so much better once you leave, even though it’s scary as hell. What she will realise is that if she can live with her abusive husband then she can do ANYTHING!

Sally

A: Thanks, Sally. I got a huge response from that piece. Turns out there are a lot of women who read this column each week who are plotting their escape. And thankfully there are also a lot of women who are noticing the red flags when their partner won’t talk, plan or share money!

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.

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: now is a good time to talk about your super fund