Setting things up right…
Are you interested in growing your wealth so that you can retire earlier?
In the early stages of your working life, retirement may be the last thing on your mind. But the reality is that 9% of your pay, by law, has to be put into a superannuation fund. And this will increase over the next few years to 12%, starting from 1 July 2013.
This amount, that is put aside for you in this way, can grow to be massive, or it can wilt and wither. If you leave your money in a super fund that is chosen for you, and decline to have any input yourself, it will be probably be put into a ‘balanced’ fund. That money is then spread over a number of investment vehicles, such as cash, Australian shares, the global share market and property. The idea of a ‘balanced’ fund is that, over the long term, each of these will have their day. The trouble is, the rest of the time they will be doing nothing exciting.
At the moment, a term deposit may generate 4%.
The property market in Australia has been static for some years. Our view is that property is overvalued and will flatline until inflation catches up and property becomes more affordable.
International shares come with exchange rate risks. 10,000 UK pounds were worth about $25,000 in 2008 and only $15,000 now.
Australian Equity Index Funds
While the Australian share market has fared much better than many, if you take no interest your money will be invested in ‘the index’. This means that your portfolio will reflect the overall share market. So if X% of the market is in mining and Y% in retail, that’s what your investments will be too. The trouble is that, of the 2,200 or so companies on the ASX, less than 2% typically, in our view, actually represent good value. That means you can buy them at a price which is below what they are worth, when you value the company. Few fund managers do this, though.
Actively Managed Equity Funds
Clime is one of the few fund managers that actively manages the share portfolio for you. We pick stocks very carefully and invest in the best. That’s why our performance is second to none. This table shows you how we have outperformed the index (a measure of the largest companies on the ASX) over the last 5 years:
|Annualised Performance to 30 November 2018||Retail Fund|
These figures are annualised and cumulative. In other words, over the 5 years to Apr 30 2013, there is a difference of nearly 70% between the return on money invested with Clime versus the index – which is the default option, the ‘do nothing’ option.
So, what can you do?
Here are some suggestions (though you should seek your own personal financial advice):
Invest in a high performing fund
You can look for a superannuation fund that invests in Clime Australian Value Fund (CAVF), such examples are Macquarie Super Wrap, and Omniport, BT Investment Wrap (but not BT Super Wrap) and Personal Choice Private. If you are not in one of these funds (platforms) then you could change, or get in touch with your supplier and ask them why the Clime Australian Value Fund is NOT on their platform?
Scrutinise the fees and charges within your super fund. Are you paying for insurance that you don’t need? These charges can chew up all your contributions if your earnings are low. Remember, it isn’t the absolute level of fees that matters, but the return that you receive after those fees have been paid. You might be better off paying a little bit more for effective advice and better returns. Especially if the net result is a better balance after those fees.
Is a Self Managed Super Fund appropriate?
Do you have a sufficient balance in your super fund to set up tour own self managed super fund (SMSF)? Look at the fees you would be paying versus the balance that you have, and consider what sort of return you could get if you invested more smartly.
Clime looks for a return of 10% per annum, which means doubling your money in seven years – even if you put nothing more in.
Are you better off paying a slightly higher fee and getting a better return? The ATO suggests a minimum of $200,000 to set up your own fund, but there is no actual minimum required amount.
If this sounds interesting to you but your funds do not warrant setting up your own SMSF, speak to your parents. Do they have a self managed super fund? Can you become a member?
In an SMSF the maximum is 4 members, but they pay only one fee. Once your part of the fund grows, you can exit the fund and start up your very own self managed super.
We recommend a corporate trustee for your fund, so that it’s easy to enter and exit a family member when it suits you.
Are your parents interested in self managed super but are currently not in one? Clime Super can help your family transfer family members’ super balances into the one account.
Take an interest
Above all; take an interest. It’s your money, make it work for you. Building wealth requires time. And when you’re twice as old as you are now, you could look forward to a retirement free of money worries and filled with fun. Work hard play hard, right?
The information provided on this webpage and the rest of clime.com.au is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.