Superannuation, Is It Worth It?

By Jason Fittler

Super funds are currently preparing their end of 2009 tax reports. You are not going to be happy with the results.

The market fell from 5100 points to 3900 points or 23.5% over this period, some sectors such as the property sector fell 46% over the same period.

Many people will only now find out, how they have been effected by the fall in the market. This will in a lot of cases lead to a feeling that super is not worthy investment. It will also lead to people drawing the wrong conclusions about super and making rash decisions which will cost them a lot more over time.

Tips and Traps

1. Super is the best environment to have money invested in at present. It has a low tax rate and provides you with tax free income in retirement. You would have lost just as much if the money was invested outside of super, it is not the vehicle but the investments which have dropped.

2. Salary Sacrificing into super is still the best way to reduce the amount of tax you pay.

3. All super funds lost money, industry super did not out perform. To understand how your super fund performed you need to understand what they are invested in. See note below on industry super funds.

4. Do not complain about fees to advisers, now is when you really need their advice. Go it alone now and prepare to be poor. It is easy to complain to your adviser, but the drop in the market happened to everyone. What is important is what you do now, a good adviser will make back your money through restructuring your portfolio.

5. Do not cash out of the market, those who cash out over the past 6 months have missed a 35% gain and a chance to make back their losses.

6. Restructure your portfolio, get rid of the dogs and buy into the investments which will recover first. Holding a dead stocks is like is like putting lipstick on a pig, at the end of the day it is still a pig.

Listed Assets Vs Unlisted Assets

I hear people tell me all the time that their super fund out performed another, but to truly know this for sure you need to take a look at the assets held by the fund. Break the assets down into listed assets (those listed on the stock exchange) and unlisted assets (those not listed on the stock exchange).

Listed assets are priced daily, as such it is very easy to value these assets on a daily bases. Unlisted assets are normally only valued when they are sold or every 3-5 years, as such it is not easy to know at any one point in time to know what that asset is worth. Now here is the trick.

If a super fund holds a unlisted assets and they believe that it has gone up in value, they are likely to have that asset revalued as at the end of the financial year so that they can report that gain in the end of year financial statements. This will increase the over all return of the super fund.

However, if the unlisted asset is thought to have gone down in value they may not have it revalued as such they do not report the loss. Producing a better result then what has occurred. The other issue is that a valuation is only subjective as such may not reflect the true value of the asset. So before you simple compare the return of one super fund to another make sure that you take a look at how the return has been calculated. Compare apples with apples before you make any rash decisions.

For most people in a Industry super fund you have no other option. As such you really can not withdraw your funds out and place them with a retail fund. This is called sticky money. This sticky money also improves the performance of the industry fund, as regardless of the result you can not take your money anyway.

On the other hand if you are in a retail fund which has not performed you can switch to another fund straight away, the withdrawal of funds from a fund will also effect the performance of the fund as it forces the fund manager to sell assets at time which might not be best.

Sticky money is another factor in the industry fund myth.

Moral

Keep putting money into super regardless of the 2009 result, your super will look after you when you retire.