Superannuation - My Approach






Hi Folks

I thought I would share with you all my approach to Superannuation. Of course, I am not qualified or licensed in anything to do with finances, so do your own research before making any changes your end. My remarks are for encouragement only. If they spur anyone on to have a long hard look at their own superannuation scheme, its fees and its returns, then I will be very happy. You'll be bound to be simultaneously enlightened, bored and angered as you do your own research - I guarantee you of that!


All the photos in this post are from where Mrs HM
and I do our evening walk at sunset.


I have already mentioned some of my thoughts on Superannuation HERE - so I will not rehash these observations. Seeing as Australians are locked into toeing-the-line with this government legislated Superannuation set up, we may as well make the most of it.

Sharing my approach of how I'm making the most of my mandatory Superannuation contributions is what this post is about today. It is not financial advice, its just sharing.


Sunset at the breakwater



Who:
  • Hostplus Superannuation 
  • Choiceplus (Hostplus's back-end SMSF product)


Why:
  • Very low fees (once you hunt through all the investment offerings)
  • SMSF platform available (SMSF means Self Managed Super Fund)
  • Very cheap fees for their SMSF platform
  • Indexing option (a nod to Warren Buffet's investing advice)


What:
  • Indexed Balanced Option (Beware - different to their default Balanced option)
  • 75% Growth and 25% Defensive asset allocation
  • Growth Assets are a mix of Australian and International Shares (developed and emerging markets)
  • Defensive Assets are a mixture of fixed income and cash
and
  • Choiceplus SMSF platform
  • Direct investment into Australian shares (S&P/ASX 300 index)
  • Direct investment into ETF's (a good selection of both International and Australian)
  • Direct investment into LIC's (Licensed Investment Companies)  - a small reliable selection.
  • Direct investments into Term Deposits
  • Reasonable trading costs


 Fees - Hostplus:
  • $1.50 per week = $78 per year flat administration fee
  • Indexed Balanced - 0.07% of total holdings fee annually (Investment fee of 0.02% plus Indirect Cost Ration of 0.05% = 0.07%). This would equate to a yearly $700 fee per each $1 million invested.
IMPORTANT - if you were to just use the default Hostplus Balanced investment option, then the default fees would be 1.45% which would equate to a yearly fee of  $14,500 per each $1 million invested !! A massive difference in fees - and this is what happens to most people who have no interest in getting involved with their own Superannuation. Double check that info yourself however.


Fees - Choiceplus:
  • $15 per month = $180 per year flat fee.
IMPORTANT - if you were to set up your own SMSF or get a company or accountant to assist, then the fees could easily run into the $1000's per year.  In my humble opinion, Choiceplus is a great way to run a share trading SMSF as you do not have to worry about any reporting or taxation requirements - it is all done for you. However, Choiceplus does not accommodate for any physical investment into real estate, you are only allowed to trade the products listed and available within Choiceplus. Double check that info yourself however.



Returns @ EOFY for Hostplus Indexed Balanced Option:
  • 2017 - 10.3%
  • 2016 - 2.2%
  • 2015 - 10.8%
  • 2014 - 14.4%
  • 2013 - 18.7%


Investment Rationale:

Due to the rules within Hostplus and its SMSF platform (Choiceplus) I must hold 20% of my entire portfolio in the Indexed Balanced Option within Hostplus.  The remaining 80% I can use in the Choiceplus SMSF platform to trade with as I see fit.

Within Choiceplus SMSF, I can only hold a maximum of 20% of my portfolio in any single security. This means I need a minimum of 4 different securities within Choiceplus to satisfy this reasonable rule.  This is no bother to me however.

The six basic stocks that I currently hold in Choiceplus at similar $ amounts are:

AFIC
ARGO
VHY
VGS
VGAD
IVV

(click on the ticker symbol to take you to info about each)

As you can see I have a 50/50 split of Australian and international stocks. You will also notice that they all are Indexed ETF's or old-world LIC's (used before ETF's were invented). Half are dividend focused and the other half are growth focused. At this stage, prior to retirement I reinvest all dividends.

The major benefit of Superannuation is that only 15% tax is paid on investment earnings and pre-tax contributions (several limits/rules apply however). The other major benefit of Superannuation once in pension mode is that all earnings are tax and CGT (Capital Gains Tax) free. Having said that ..... many, many rules apply to both these major benefits (click the ASIC site for full details).

IMPORTANT - If you want to retire before your preservation age (my preservation age is 60 years old) then you will need to invest outside of Superannuation as all Superannuation funds are locked away till your preservation age. 


PDS:
  • PDS stands for Product Disclosure Statement.
  • Read every single word of any PDS's for your current Superannuation and any Superannuation you are considering moving to.  That are deeply boring documents yet also enlightening. 

Sand and rocks in a natural formation


So, again, I am not qualified in anything financial and I only share all this information to encourage others (Australians mainly in this case) to start looking seriously at their retirement Superannuation accounts. Potentially, you can save a motza in fees and have much more control over your obligatory government legislated contributions. If I can research and understand this stuff, anyone can!

Do your own research and obtain fair and unbiased professional advice if you need to. One of the very best resources of accurate free advice I know of is the ASIC site here.

Also, Hostplus are not paying me in any way for this post - I'm just openly sharing what I do and trying to break down taboos about talking about finances. Even though our particular dollar amounts etc are certainly our private business, we really are all in this together.


Looking back to the beach house



Take care folks and stay nice.

Mr HM (Phil)

P.S. The  figures and facts quoted in this post were taken from the Hostplus and Choiceplus PDS available at the time of writing this post. Please verify these for yourself.


Comments

  1. Goodness me, so glad we don’t have to get our heads around that lot although some people here do have to.

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    Replies
    1. Things are quite different in the UK regarding pensions I can see. You all have different but just as challenging things going on with your pension set up by the looks.

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  2. I glazed over just reading this post Phil, I fear I'm doomed :(

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    Replies
    1. You are not doomed - goodness me! I just want you to do one thing Cheryl. Download the PDS for your super fund and search for the words "fees" all through the document - just read those bits...that's an excellent start. Goodness me, I look at all the terrific stuff you tackle and achieve .... you certainly can get your head around Super. It could save you many $1000s of dollars. If you get stuck, email me and we can take it off line.

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  3. I just wanted to add, as I don't think you've mentioned it yet, is the super co-contribution. If you're eligible, you can receive up to $500 per year free money from the government, if you add $1000 after tax. (It's different depending on your income bracket). In theory your balance will grow by $1500 per year. When you have a low fee super fund like Mr HM, essentially the annual fees are covered by the *free money* the govt. puts in.
    So I always try to at least add $1000/p.a. to take advantage.

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    Replies
    1. Absolutely right jay.
      If you earn less than $51,813 per year (before tax) and make after-tax super contributions, you are eligible for contributions from the government.
      If you earn less than $36,813 the maximum co-contribution is $500 based on 50c from the government for every $1 you contribute. The amount of the co-contribution reduces as your earnings increase. To receive the co-contribution you will need to lodge a tax return for the year. The government will then work out how much you are entitled to. If you are eligible, the government will pay the co-contribution directly to your fund.

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  4. Thanks for this detailed info Phil. You've prompted me to look up my Hostplus online, (after a quick 5mins to join up), I can see mine is 100% Balanced default, so I need to change it to Indexed Balanced. I've found the page on which to do it, but may I ask you what percentage I should type into the box? Bearing in mind that I'm now retired but I've left my super balance in Accumulation mode as I don't need to draw an income from my super as yet. Do I change mine to !00% Index Balanced? Thanks in advance Phil, I've asked you in public as it may help someone else to know this too.

    ReplyDelete
    Replies
    1. Yes - 100% Indexed Balanced. Correct. Indexed Balanced has very small fee structure compared to the default Balanced option. A prudent move Sally.

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