Compare the Pair

We all know this ad from Industry Super Funds, if at least not this ad, one of the variants?

Well it's been very successful for them and the premise of the ad is that if you pay low fees, you’ll be better off. And I completely agree with this, keeping costs low is critical to achieving success when it comes to investing.

But industry funds aren’t really that cheap, and particularly not at Precision Wealth Management. Our clients pay about the same as industry funds, if not less, depending on the balance. This is because we are part of a large group that manages over $3 billion and have negotiated very low fees for our clients.

But the biggest determining factor of your financial success is actually the structure of your portfolio. How much do you have allocated to each asset class (Australia/International shares, property, cash, short term/long term fixed interest etc)?  On a simple example, this is evidently true if you look at the 5 year returns on QSuper. The higher risk “aggressive” fund has outperformed the lower risk “moderate” fund by about 4% per annum. That’s massive.

You might say, well shouldn’t everyone invest in the highest return? Well, it’s just not that simple. Risk and return are related and to achieve the higher return, you need to take on more investment risk, which might not be suitable for everyone. That is why a tailored portfolio that suits not only your tolerance to risk but also aligned with your objectives is so important.

On top of that, if you compared a third person ("Compare the Trio" doesn't quite roll off the tongue the same way) that had been salary sacrificing $50 a week for the past 10 years, that person would be light years ahead. I have a lot of dealings with people approaching, or in, retirement and I'm yet to meet one that said "I wish I didn't save so much. I wish I spent a bit more each week on discretionary expenditure". I think you can guess what most people regret when it comes to saving.

The other important aspect is the insurance offering within superannuation funds. The industry superannuation funds offer group insurance policies which are teeming with fine print and are not guaranteed renewable.  This means the insurer can change the terms of the insurance, the definitions, and possibly cancel cover all together. A good insurance policy is guaranteed renewable which means that providing you continue to pay the premiums, the insurer must continue to provide cover and is bound by terms and definitions when you originally took out the policy.  Changing the terms and definitions does happen.  Read the article from Shine Lawyers about the changes to the AustralianSuper definition on Total and Permanent Disability. 

Not only that, but the premiums in AustralianSuper have increased considerably over the past 5 or so years and now, a retail policy with the same level of cover can be cheaper as shown in these pictures. This is the same in almost every instance I see when comparing premiums for clients.

Superannuation is serious matter and one of the most important aspects of your financial life. And as a general rule of thumb, don't take advice from a guy with a mustache and a fedora hat. So if you want to "Compare the Pair", give us a call (1300 200 012) or email (admin@precisionwm.com.au) and I can give you a second opinion on your superannuation. 

Glenn Hilber is a Certified Financial Planner with over 9 years experience and the owner of Precision Wealth Management.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.