Back                                Watching your super

In the most recent course I was discussing the results of some of my share purchases and I mentioned that you should always be aware of why you bought and sold a particular share. Someone then asked me whether you had to know this much information about what your superannuation fund was doing. This raised an important issue, how much should you know about your superannuation fund? 

Your responsibility

I make it plain in the course that most people in Australia are far to blasé about their superannuation. For most of us super is a critical part of our ability to retire in comfort. Yet many of us don't know how much super we have and / or don't understand exactly where our money is invested. Too many people don't even read their annual statement and would never dream of ringing their fund to ask questions.

Lets be clear. Your super is your money and it's your responsibility. I understand that many of you don't have the time, skills or interest to set up your own superannuation fund and invest your money directly. I also know that, despite what you hear from the media from time to time, the vast majority of people working in the superannuation fund industry are honest, motivated and highly skilled. So using a fund is both a sensible and efficient way to build your retirement income. But no matter how dedicated the staff of your super fund are they are only doing their job. But to you, it's your future so spending less time keeping an eye on your super than most people spend picking a new fridge is just not an appropriate way to manage something this critical.

How much do you need to know ?

Fortunately you don't have to monitor every little thing your fund does. Not only would this be pretty difficult it is also a waste of time. You need to know just enough to have confidence that they are managing your money in an effective manner.

If you look at the answers I give to picking an investment fund (click here) and picking a financial advisor (click here) in the FAQ you will see I detail the basic things you need to know.  If you don't have it already, I would contact your fund and ask for as much information as you can get on the fund's investment strategy, investment options, long term performance and fee structure.  In my opinion a good superannuation fund is one that has a conservative strategy, has delivered good returns (a minimum of 6-8 %) over the long term (at least 10 - 15 years) while charging as low a fee as possible.

Pay particular attention to how they handle years where economic down turns or recessions occur. A fund with a conservative approach will often out perform the more aggressive funds during bad years.  It's no good if a fund gives you a 20% return 3 years in a row and then loses 60% in one year. Believe me this happens a lot more often than you think in the funds that use a lot of debt and take big risks.  If you're not sure when those years were ask the fund they should be able to tell you.

How easy was it?

You can tell a lot about a fund by the way they provide information. A good fund will present information to you in a clear and understandable manner.  They should be honest and open about their current performance and about any issues they feel may affect their performance in the future.  How easy you can get information is also important.  I would be very suspicious of a fund that can't or won't provide information that allows you to monitor your investment.  If the fund is careless or indifferent about providing you with information then there is a good chance they are careless and indifferent with your money.

To act or not to act

Once you start to monitor your super more closely you may feel a greater inclination to act.  The decision to act on a piece of information has to be just that, a decision not an impulse or reaction.  As an example, I was asked should you change your investment option when share prices are falling. My answer is it depends on the reason for the falling price.  Of itself a falling price doesn't necessarily mean that a bad decision has been made. This is particularly true of shares where their price can be driven by strong emotions rather than real business related information. As a general rule I would not make a decision on the basis of price unless it was accompanied by other changes of a more fundamental nature. For example if the unit price of your formerly conservative fund is falling because it has a new investment team who suddenly take on large amounts of debt and start investing in areas in which they had no experience.

Similarly there is a tendency amongst some people to 'chase results'. This involves people changing investment options or funds on the basis of short term performance. You can read in newspapers and magazines about how each fund has performed over the last 3 months and some people look for the top performer. If their existing fund isn't the top performer then they move their money to the one that is. The problem is that the top performer can, and does, change when measured over such a short timeframe and as a result they frequently move their money. This almost always has a detrimental effect on the overall return because not only is it very hard to consistently get a decent return in such a short time frame but your return is further reduced by all the additional fees you incur.

Moving your money is an investment decision and should be seen in the context of your overall investment strategy and goals. If you are using the financial independence process we cover in the course or some other one then you will have a strategy and objectives. The important thing is to make sure that any decision you do make is more likely to support your objectives and this is harder if you are making rash or frequent changes. All the successful long term investors generally subscribe to the 'do more thinking and less acting' view. If you know how your fund overall and the investment option in particular has performed over the longer term then it is easier to put any short term price change in perspective.

However, if as a result of your monitoring you see something that concerns you then contact your fund and ask them what is going on. I would also regularly review your financial position and goals and check that you're happy with your fund and/or investment option. If you have a financial planner they will usually offer regular financial reviews as part of their service so take advantage of this offer. If you don't have a planner see if your fund is able to help you or able to recommend someone.

Wrapping it up

Generally monitoring your super is not hard or time consuming. It is worth the effort and will result in it being far less likely that you will be hit with nasty surprises. Given recent events it is worth remembering that no matter how good your fund is there are going to be times of poor performance. The share market as a whole has declined around 20% since Oct - Nov 2007. As a result almost all funds are likely to report reduced or negative returns. This is not a time to panic or abandon your goals. If you haven't done this in the past, now is the time to make an effort to learn more about your super so that you can make better decisions in the future.