Change Your Super Investment Option ASAP

Chances are, you’ve set up a super account if you’ve started working part-time as a teenager.

By default, when you set up a super fund, it’s most likely set to the “Conservative” option as a default.

Typically, the Conservative option is invested into a mix of ETFs and other low-risk assets like bonds or cash. Whilst bonds and cash are great for reducing the volatility in your investment portfolio, in short, they’re not very useful if you’re a teenager who has many decades left.

As a young investor who’s in the accumulation phase, you want to accumulate as much wealth, not try to conserve it.

Literally 2 weeks ago, I changed my investment option as I wasn’t even aware of this, and found that not many people in general aren’t aware of this option, which could potentially cost $100ks or even millions of dollars when you reach the age of 60.

Dave from Strong Money Australia has written an article I highly recommend reading called “Making Money From Little Changes (Part 2)“, and the first topic it talks about is “Super Optimisation”.

Here’s a brief summary of what it talks about:

Say you’ve got $80,000 in your super right now, and you’re adding about $8,000 per year through your employer contributions.

If you’re in a balanced fund earning 7% per year versus switching to a high growth or indexed shares option earning 8% per year, here’s what happens over 20 years:

— The conservative option gets you to $637,000.
— The more aggressive option gets you to $739,000.

That’s $100,000 difference for literally doing nothing except ticking a different option in your online super dashboard.

Where does this 1% return boost come from?

Well, if 25% of the money is earning 4% in low risk investments vs 8% in shares or high growth, that equates to 1% lower returns overall.

The difference could even be higher than this if you have a bigger balance, add more to it, and choose 100% indexed shares, since fees are also usually lower than default funds.

Lower fees + higher returns = massive compound improvement.

Now, if you’re part of a couple and you both make this change, you could double the savings!  And remember, this difference will continue compounding for the rest of your working life and beyond – not just for 20 years.

Think about it – most people work for 40 years. Over that timeframe, this one simple change would be worth roughly $1m, or $2m for a couple.

It doesn’t even stop there. You’ll also earn more returns from 65 onwards due to the higher balance… even if you switch it all to cash from that point!

Now you probably don’t want to keep working for 40 years or you wouldn’t be reading this.  But it highlights the power that one small decision can make.

The best part is, once you make the switch, you literally never have to think about it again!  It’s the ultimate set-and-forget wealth building strategy.

Will there be more ups and downs?  Yes.  Seeing your super fall more often (and more sharply) is the price you pay for bigger long term rewards.

For this reason, it won’t suit everyone, but in my view, it’s totally worth it for those who recognise the short term movements are meaningless when you have a multi-decade timeframe.

Basically, selecting the “Higher risk” option means you’ll be invested more into shares, and less into bonds, and boosts your returns by 1-2%.

1-2% may not sound like a lot, by over a period of 40-50 years, it makes a huge difference. As Dave mentioned above, a 1% difference in returns makes a $100k difference over 20 years for literally 10 minutes of work!

If that’s not putting money off the table, then I don’t know what is!