Anything and Everything about Superannuation

How about SMSF? Then you can buy LICs. If you can get 14% in industry shares then cost of smsf is justified. Isnt it?

 

However I think the overheads of a SMSF doesn't appeal to me.

 

Yep

Apparently Australians are collectively paying about $20 billion per year in superannuation fees, its a Banksters paradise

Ross Gittins
Think of it: the government compels employers to take 9.5 per cent of their workers' wages and hand this over to the "financial services" industry, then looks the other way while these fat cats rip off the mugs the government has delivered into their hands.

Is your Super in a Fat Cat Fund?
Stockspot has been actively campaigning to raise awareness of poor fund performance since 2013 when we published our first report into 496 of Australia’s largest managed funds, finding that 45% of returns were paid away in fees between 2008-2013.

 

Yes @Gockie. The overheads in time and cost. My super is enough to justify SMSF fees but I think I should keep it simple. Would anyone here see the point in IPs in SMSF?

 

I dont see the point of IPs in my super may be one day when i have heaps in my super. But I can see stocks in my smsf. If smsf cost is less than the fee I will go for it

 

Does anyone know about leveraging into shares in SMSF? I believe one can only leverage into a single parcel of one share. This could work with say buying a LIC such as MLT after a big crash. This is one reason why it might be good to go for SMSF over industry funds.

 

After considerable deliberation, I have decided to move from ING Living Super to SunSuper. I thought the thought process might be useful for others.

ING Living Super
I was quite happy after transferring from a very high fee super into ING Living Super and decreasing my fees by a factor of almost 10 whilst gaining the flexibility to choose the ETFs and LICs I wanted. At first I didn't like arbitrary constraints such as that 20% couldn't be in direct shares but realised that this probably made little difference in the overall performance. There was also the 1% that had to sit in the cash hub earning 1% interest - very naughty from ING who had to pay money back to customers for that faux pas. But I was a happy chappy.

Move forward to a few months ago when ING decided to hike up the fees. With my previous fee experience I wasn't able accept this change as I consider it lying. I had also told others on this forum about the virtues of ING for which I am sorry .

Exit strategy
ING has advised me that the fees will be paid prorata at the end of each month. Thus, if I exit half way through a month only half the month's fees will be charged. Given most of my LICs and ETFs were purchased in early July 2016 I will be able to wait until the 1 year capital gains tax reduces, sell and exit early in the month. I will probably wait until the dividends are paid which is around 4/7/2017.

SMSF
SMSF considerations for me personally:
Pros

• Fees: Balance somewhat warrants the consideration from a fee perspective.
• Joint account with partner can reduce fees and allow earlier access to funds.
• Future view: a plan to buy Australian LICs paying fully franked dividends now and during the accumulation phase that would move across in the Transition to Retirement and Pension phases without a CGT hit. [However, I didn't see it making any difference whether I buy the LICs now or later, if any contrarian views I am interested]
• Borrowing: I tried to find out about borrowing to buy shares in superannuation. This doesn't seem like a popular option but I would have liked to implement PT's strategy here, borrowing an amount equivalent to a few years of dividend payments to buy more LICs.

Cons

• Fees: Industry funds are still cheaper.
• Effort: time consuming to manage tax time and in terms of investment selection.
• Overkill: No intention of buying property and only really need index funds.

SunSuper
I considered Hostplus, Australian Super, the list went on. At first I looked at similar products to ING that allowed the selection of specific shares but they were slightly more expensive. Either brokerage or upfront fees ended up being a little expensive. Then I discovered SunSuper's alliance with Vanguard. I will be able to invest in 100% shares with a chosen allocation weight between Australia and International that I will be able to balance periodically.

Investment fees
50/50 allocation = 0.085% p.a.
Australian Shares - Index 0.08% p.a.
International Shares - Index (unhedged) 0.09% p.a.
Choose your investment option | Sunsuper
Admin fees
$1.50 per week, and 0.10% p.a. on the first $800,000 of your account balance.
Total fees
0.19% + $75 = me

There you have it. My journey back to a simple index investing approach for superannuation, which I hope is helpful to someone. I will start with a 50/50 allocation but I'm able to re-balance in any way I want, even being able to easily buy into the Australian Property index for the hefty fee of 0.11%. In terms of overall allocation I will purchase more LICs outside super whilst still maintaining a balance of LICs and ETFs.

Not advice.

 

Thanks @ErYan for the great information.. I am currently with Aus Super just high growth was debating whether to go to Hostplus direct member option (As cheaper than Aus Super) or just stick with Aus Super for now I definitely think at some stage would be better for me and my wife to get SMSFat a lter stage perhaps..

 

Fees are an important criteria for me as I have been burned in the past and am of the opinion that as long as one is fully invested in the market the returns of all the funds will be similar. Quite a Bogle type view. I remember @Il Falco mentioning that you could get lower fees in Australia Super by choosing your own DIY mix - around 0.35% as I remember compared to high growth of around 0.7%. I will try to find the post.

The question you need to ask yourself: is there a benefit of Hostplus direct or SMSF for your situation. If you want to tinker with specific shares and believe that you will outperform after fees then that makes sense. Remember to consider brokerage costs etc.

This is something @Hodor said to me and it makes sense: there should be no harm done if you stay where you are until your balance grows enough to justify SMSF or you feel like you want to take control; unless of course you are a savant stock picker who returns 20% p.a. and then I would say go to SMSF yesterday.

I will find that post and see if there is a chance for you to reduce your fees.

Not advice

 

Yep, my view @ErYan what you have done is spot on. Get those super fees down as low as possible with simple broad exposure. Indexing is ideal with a long horizon.

I have gone the 2 fund mix in Australiansuper which gets cost down to around 35bps. I wish it was cheaper!

 

I was so alarmed by this (as i'm with Colonial First State) I started to dig a little deeper into my returns.

A year ago, I contemplated moving to just a run of the mil Industry Super Fund in Hostplus due to the low fees, but decided to stay with CFS and my financial planner advised to select a large majority of international shares through the Magellan Global share package and Perennial investments/Value packages.

On review of the returns vs fees, I've paid $1,481 in fees vs $78 if I had of gone with Hostplus so essentially around $1,400 worse off, but the returns over the last 12months have been 12.77% vs 5%. Being young (26) my balance isn't that substantial, however this has resulted in a difference in almost $3,000 net of fees.

 

I have no idea where you are pulling 5% from. The Managers you have quoted above have significantly underperformed Hostplus International share option at +18.83% for the 12 months. Hostplus "balanced" did 14% and shares plus did 16% in the same period. Sack your planner.

Investment Returns Modal Popup

 

For those looking to retire early one option could be to invest in a low cost Super fund and select a high growth fund option with a significant allocation to International shares. Or choose available direct options favouring International equities. Then you can build an ASX dividend focused, tax effective portfolio outside Super that will provide great income in early retirement. No drawdown means no CGT. Franking means very tax effective. The high growth portfolio with significant exposure to International shares in Super can then continue to grow in the background in a low tax environment. Importantly when you can access Super and may need to draw down capital from International shares it will be CGT free.

Essentially investing locally for high tax effective income will get you to retirement much quicker without concerns about currency risks, capital fluctuations and having to maintain high cash buffers accordingly in the case of International shares. But you have peace of mind in knowing that you have taken out insurance for the long term against country risk through investing in a higher allocation of International shares through Super.

What's important is your "overall" asset allocation across Super and outside Super.

Anyhow just an idea.

 

The 5% was from the article listed in the original post.

 

So no point having the same ASX dividend focused strategy and shares bought both inside and outside super? Is it best to leave that dividend strategy outside, and have your super fund run a high growth minimum fee option for maximum capital gain and simplicity? Is that a fair balance without doubling up.

 

In case you missed my above post covering same which is what I'm suggesting:
Anything and Everything about Superannuation

 

Ah yes. This is the issue with rear view investing and trying to compare fund and market returns over different periods of time. Particularly a "balanced" fund vs. all equities. You should have made that change 12 months ago Do it now.

 

Thanks @austing & @ErYan great information as always think I will stick with Aus Super High growth for now given my balance even though just checked costs and its 76 bps including possible performance fees..( @Il Falco you mention you are with Aus super 2 fund mix at 35bps?) and look to move to SMSF somewhere down the line given my wife is approx. 9 years younger we would be able to transfer the balance and keep in super for longer.. Definitely going down the dividend ASX focussed route outside super consisting of approx. 90% allocation to LICS and 10% direct share allocation with stocks I believe will be able to grow their dividends over time..

 

Absolutely - have already emailed my 'advisor' armed with the above outlined stats.. Lets see what happens!

 

Hi @APINDEX,
As confirmed by @Il Falco you can get the MER down whilst being able to tinker with asset allocations.

Australian Super High Growth
Allocation Details
Page not found

Allocation Summary
The PDF available at: Page not found
shows that the High Growth you are investing in has an allocation of 32/40 Aus/International plus 5/7/8/5/3 in Private Equity/Property/Infrastructure/Credit/Cash.

Fees

• High Growth = 0.73%
• 80/20 Australia/International (without cash etc) = (0.31x80+0.5x20)/100 = 0.35%
• 50/40/7/3 Au/Int/Prop/Cash (emulating High Growth replacing Private Equity, Infrastructure and Credit with Australian Shares) = 0.40%

Page not found

Conclusion
Without changing super funds you could reduce fees by around half but lose Private Equity, Infrastructure and Credit from your High Growth portfolio. The benefit is you can tinker with allocations allowing you to be more heavily invested in shares (to me high growth means shares not cash).

Just my opinion. Not licensed to give advice.