Choosing investment options
The future is uncertain. Choosing a suitable investment option for your fund is more difficult and more important than choosing a pastry from your favourite patisserie. And that is hard enough!
Our reports allow you to easily understand the important decisions that need to be made about superannuation strategy, what you can do now to improve a position, and obtain a low cost, easy to use, plan for the future.
We do more than show one number. To help choose a suitable investment option, our superannuation projections show what outcome is likely, and what can happen in both good and bad future scenarios.
If you’re new, then read a sample report here:
… then see the way we ask the questions to produce a report:
If you liked that report and would like your own subscription, then click here:
Current subscribers click here:
Why should you care?
One of the most important decisions to be made with a superannuation fund is how to invest it. How much should be in assets that have an expected high rate of return, with some uncertainty, versus how much in assets that have much more certain, but lower, rates of return?
For somebody 30 years old, the difference in typical sustainable spending levels can be substantial between the two extremes of investing completely in growth assets or completely in defensive assets. And there are all the possibilities between these two extremes.
Every person is individual – some prefer a higher likely spending level and are willing to take the risk that their actual level is more uncertain. Others prefer to have the likely level being lower, but with more certainty on that level. That’s why we show likely outcomes and the best and worst that could feasibly happen.
Our Investment Options Report helps people come to an informed decision by showing the projections of future income and fund size for a number of different strategies.
After you’ve decided on an Investment Strategy – with a certain proportion of Growth assets versus Defensive assets – it needs to be implemented.
For an SMSF the proportion of the assets in each category can be adjusted by the Trustees according to a timetable that suits the inflow and/or outflow of money to the Fund.
For members of a managed superannuation Fund, such as an Industry Fund, the fund manager will have a range of investment options available. One of that range should be appropriate to the investment strategy that has been chosen. Most super funds have the capability of changing the investment option on their website; some make this easy, some make it more complicated.
Our subscription model makes it easy to monitor the changes in retirement projections as personal circumstances change, or in response to market fluctuations. Reports can be run at any time, and improvements in the reports, and new ones, are included in the subscription price.
What do you do next?
Superannuation regulations (see here) require SMSF trustees to:
- Have an Investment Strategy;
- Consider insurance for members as part of the fund’s Investment Strategy;
- Consider fund liquidity i.e. how will assets be accessed when payments need to be made to members;
- Consider the diversification of assets i.e. whether you have all your assets in one basket, or too few baskets;
- Regularly review their Investment Strategy.
The Investment Option report is helpful in determining the Investment Strategy for an SMSF. We have a process that can help SMSF Trustees build an Investment Strategy document for their SMSF. Use the button on the left to start this important step.
Recent proposed regulations for public offer super funds require a Retirement Income Strategy to be produced and regularly reviewed. This is not a requirement for SMSFs, but it’s still recommended as good practice, that Trustees go through the steps required to produce such a strategy. We can take you through these steps by clicking on the button on the left.
Our financial model provides a confidential report on the impacts of different investment options based on current superannuation fund size, employer’s contribution, age, and compares those to your current option.
We assume that today’s superannuation guarantee levy, pension rules, taxes and so on, are unchanged. Of course, given successive governments changes of these conditions this is an unlikely assumption to hold. For this reason the important point to consider is the comparison between different investment strategies. Decisions should be made on this comparison, rather than the actual level of the values such as estimated retirement income or the value of the fund at retirement.
We provide a comprehensive outline of our assumptions and modelling in the report and in white papers to be published soon.
So, find out the effects of different investment options to get more effective decision making, now.
What do the terms mean?
Growth assets: These assets have returns that are linked to the growth rate of the general economy. The most common examples are company shares listed on the world’s stock exchanges, and property – residential, shopping malls, offices, industrial parks etc. The rate of return on these investments is uncertain, though this is compensated by having the expected return being higher than for other assets.
Defensive assets: These assets have returns that are much more certain. Examples are bank deposits, term deposits, government debt, and corporate debentures. The high degree of certainty attached to these assets comes with a lower expected rate of return than growth assets.
Subscribers: click here for the report:
Investment Strategy: The split between growth and defensive assets in a fund is called the investment strategy. There are a variety of names used for this idea by the wealth management industry. Large superannuation fund managers give their members a choice of investment options, which have different investment strategies. In an SMSF it is a requirement of the Australian Tax Office that an investment strategy be officially adopted by the Trustees.
The investment strategy can change through the life of the fund. An mProjections subscription allows a fund’s strategy to be assessed regularly, giving investors more confidence in their retirement futures.
Lifecycle investing: One investment strategy that regularly changes the split between growth and defensive assets is a lifecycle strategy. This also goes by the name of a glide path. One example of such a strategy is to have the fund invested 100% in growth assets when a person is aged 30 or less, giving a high expected rate of return. Every 5 years the proportion of growth assets is reduced by 10%. When the investor reaches age 70 the fund has only 20% in growth assets, and 80% in defensive assets, giving a much more certain level of income.