Super happiness

@Gockie, from my reading, Income in the graph above is Growth + Income. In other words, their Income is Total Returns.

Is that your reading?

 

Total benefit (grey line) is the sum of the contribution (blue) and the income (orange). All three lines are cumulative. Given enough time, the income (orange) far exceeds the contribution. I wonder if you made a typo or missed a word, the line I marked in bold when I quoted you doesn't fully make sense to me?

 

Likewise, our net returns for FY21 look like being north of 25%.

This is after paying our mandatory pension and all expenses.

 

So what happened to the capital gain/growth?

It wouldn’t be zero.

 

Right, that makes sense. You are probably right, they probably included it in with the income. It definitely could be spelt out/labelled better.

Update: The text in the original source is clearer. I guess for the graphs the space is more limited. So replace "income" with "investment income".

 

Asx300 and sp500 have both returned about 28%
World ex US about 23%
High growth diversified (e.g vdhg) about 25%

If you're under 50 and aren't getting these returns this FY then you might want to re consider your asset allocation.

And for those over 50 depending on circumstances, arguably still appropriate.

 

For any other Luddites like me, I transferred to a shift role in my profession, two years and three months ago, from that time I tipped every available cent into my super, I was not constrained by the cap as I had previously been a Govt. employee and still was. As of 30/6/2019 my super was $250,083 and I have contributed about 90K give or take. ie, as I can manipulate contributions on line on occasion I have reduced it, when I have made a big purchase, the external security doors, the patio. Occasionally I have increased it, if I have been on a stretch of night shift (not recommended) . Today, it is $435,567.
I completely understand this may not represent a huge achievement to many people. I've been single all my life, that little kid growing up in the commission house watching my father smash my mother made me wonder why marriage would appeal to anyone. I've raised two kids, been the first person in my family to obtain Bachelor degrees, provided my kids with a safe and comfortable home after we moved out of the half eaten shack I'd bought into the new home I had built. Now I can watch, with enormous pride, my youngest sailing through her tertiary degree at a fancy pants University, HECS partially paid for by one of those unpopular savings schemes that they were enrolled in at birth. I would have withdrawn the money from any other scheme, god, we were so poor! This is starting to sound like a country and western song, but it illustrates the magic of peace of mind, the power of compounding and is a tangible result of hard work and determination.

 

Respect @moridog you have achieved so much! Yes, the power of compounding is amazing

 

A major milestone for a personal super account is when your growth on exiting balance starts exceeding your yearly contributions. Earlier you hit that stage, bigger the balance at retirement.

 

Same here and I super love compounding in Super .

If a couple were to retire at the start of next month, they MUST pay themselves a mandatory pension of 4% (let's ignore the COVID reduction for now). If both of their balances were $1.7M (the maximum balance for tax-free pension), their self-funded pension in FY22 would be $136,000 tax-free (and Medicare free).

We know the mandatory rate goes up from 4% as one gets older. It is currently 11% for 90-94 years young and 14% for 95+ years young.

Over the last 120 years (since 1900), the Australian share-market has returned an average of 13.2% per annum.

Historical-returns-of-Australian-Stock-Market-infographic-2019.pdf (topforeignstocks.com)

So, that is telling me that, if my Super can achieve total returns equal to 120 years average of the Australian share-market, my balance will only start dropping when I get to 95.

And, if one's Super can achieve total returns slightly higher than the 120 years average of the Australian share-market (say 15% or 16%), one's balance will increase until one departs this planet.

So, I tell my family and friends (not advice) they should:

1. Aim to get their Super balances as close to the tax-free threshold (currently $1.7M) as they can before retirement.
2. Start as young as possible to give one every chance of reaching that tax-free threshold, to allow compounding to work its magic.
3. Have an investment strategy that produces total returns of 13% pa (or preferably 15% to 16%).
4. Such returns will give one every chance of reaching that tax-free threshold before retirement.
5. And means that one's Super balance will continue to increase until one departs (need to acknowledge that the increase is not linear, there will be waves and toughs).
6. Hint: property is unlikely to do it.

Happy to be corrected .

 

Whoo hoo!! Celebrate, good times!! awesome @moridog!
Doing brilliantly. Assume you are using stronger growth options.... I personally think you have done the hard work. I don't know how old you are, but what you've done in the last 2 years deserves a lot of applause. The extra money will snowball/compound so massively. I think you have set yourself up really well.

 

@kierank I'm not sure how marketindex calculates the quoted figure but it's possibly misleading.

Data from RBA indicates long-term performance at closer to 10%pa total return, or about 6% real return after inflation.

https://www.rba.gov.au/speeches/2018/sp-so-2018-12-13.html

Regardless, agree with everything you say especially loving super compounding in super

Edit: no doubt you personally have achieved more than the long term market return.

 

Congratulations @moridog !
Clearly the result of incredible hard work persistence and sacrifice. What a great example of what can be achieved. Complete respect.

 

From my reading, that article uses the total returns of the index each year (footnote to Graph 4). That is, dividends are not re-invested.

From my reading, their returns are based on the All Ordinaries Accumulation Index (XAOA) which includes dividends and those dividends being re-invested.

To me, this is a better measure as in Super, dividends would/should be re-invested, especially in accumulation phase.

Happy to be corrected .

Since going to pension phase 10 years, our share portfolio in Super has achieved total returns 17.3% pa.

Since getting serious about this stuff 19 years ago, our share portfolio in Super has achieved total returns 16.7% pa. This period includes both the GFC crash and the COVID crash.

I consider myself a mug punter but the above gives me confidence that, with the right research, advice, … total returns of 13% to 16% shouldn’t be out of the reach of most people.

 

You forgot that the compulsory % drawn down increases (admittedly IIRC it doesn't get up to the heady heights of 20%) but I have only seen very few years with those heady returns.


@kierank - doing well if you can consistently achieve >10% returns (tax-free or minimally taxed), it'll ensure that your super keeps growing even when you're obliged to keep withdrawing a growing amount.

 

No, I didn’t forget.

The point I was trying to make is that if one can generate total returns > 14% pa and only pays oneself the compulsory %, then long-term their Super balance should increase (acknowledging the peaks and toughs), albeit the rate of increase will decrease as one moves from one band to another.

That is why I made this comment:

Our biggest fear going into retirement was that we might/would run out of money .

In the 10 years since retiring, our Super balance is nearly double what it was 10 years ago.

Why?

Even if we paid ourselves 14% (the highest compulsory rate) each year, our balance today would still be higher, albeit no where near double.

Here’s hoping we can do this for the next 20 to 30 years. I will let you know when I am 95 .

 

I can believe those returns, what I find hard to believe is that people are satisfied with poor returns. 28 years ago, when Jeff saved Vic with privitization and selling Govenment assetts I Invested in a private company VicGrain which bought GEB from Dept of Ag, which was commercial property ( Like 300 grain delivery sites and some ports) and also bought V Line freight ( rail trucks). bought 14000 shares for 5c, about 2 years later worth 25c I was entitled to buy another 4000. Maxed out LOC ( only $700 but was alot then) to buy 2400. In 1995 listed @ 3.00. Graincorp which owned 30% eventually took over, I sold out along with directors and major shareholders @ $17 dollars when out of touch managers in city offices only interested in short term profit and bonus's ran the company down didnt re-invest and when was becoming. uncompetitive. When I sold the shares were worth about $ 300,000, some times DRP, usually I would get a 100% dividend of $1000 a year. So I had about a 35,000% return. Investing in sound business's is not risky. Not investing is .

 

I'm quite sure the RBA data is cumulative total return (ie combination of capital gain and dividends)

MarketIndex seems to have updated their pdf post the version you linked. Now quoting 11.8% pa over the same period

https://files.marketindex.com.au/files/statistics/historical-returns-infographic-2019-updated.pdf

There's also a pretty significant disclaimer from the editor of marketindex on pre 1990 data.

I reckon I'll go with the RBA research department on this one and keep my expectations of the long term performance of the market to a "modest" 10% total return.

You should too as it makes you look like less of a "mug punter" with respect to your 20 year out performance!

 

TBH, I would be happy to get 10% pa for the next 25 years.

Then I will be 90 (if I am still here) and the compulsory rate goes to 11% - probably won’t care what my Super balance is .

 

Need to disagree, both of us have above those thresholds still in accumulation phase, the aim was to grow it to around $10M when all income was tax free ….. until thresholds and tax was introduced into Super!
All mainly achieved via growth in SMSF and CC (Concessional Contributions) but not NCC (Non concessional contributions) BUT with a mixture of investments various investments.
Initial employer contribution Super was rolled over into our SMSF in 1995. Initially mainly allocated directly into ASX share investments, just before GFC sold out of all, including one share with x 30 return, paid tax, and reinvested into RE with cash purchases from profits.
Then extra RE was bought with commercial loans and LRBAs (Limited Borrowing Arrangements).
Excess cash is parked in offsets or invested into ASX. Have also invested some into private IPOs as sophisticated investor.
So actually in our case very minor exposure in ASX in SMSF most in RE yet was able to greatly take advantage of compounding. Actually sold only one IP in Perth but invested into more IPs.
As you are aware leverage and time in well located RE can compound growth as since most IPs are house with land, only one block of units owned BUT under various entities not just SMSF (whole family collaboratively owns).
So our example illustrates it can be done via a mixture or alternative investments.
BUT do you really want to know the missed opportunity?
We just started to invest into RE (privately and outside SMSF too) few years back and our dear friend wanted us to invest into his private venture. We declined as leverage was used for RE and just starting out so we did not take that opportunity did not have that cash then. Turns out $100K if invested into his venture in around year 1999-2000 would have generated us $15M few years later, yes correct $15M profit, unfortunately we live and learn.
Imagine if we invested SMSF proceeds into such a venture then?
Should point out initial investment of around $65K was rolled in 1995 into our SMSF.
Now not $10M but certainly more than half, so we are true examples it can be done in other ways, not just via regular contributions via ASX or just RE, other investment opportunities exist.
As yes, we also held physical silver and gold in SMSF but once changes to storage and insurance came about we sold out and did not pursue alternative investments such as collectibles (art or jewellery or else).
I think the difference was that we took total control of our SMSF then and really invested directly into what we decided to risk, perhaps being younger and more naïve served us well, unsure if we would it do it now?