A Word About Superannuation Funds

After all the talk about how great that superannuation fund is for savings and tax breaks, investors are no doubt disappointed to find that over the last year their superannuation has not performed very well at all. In fact, many superannuation fund returns have been negative - and look set to be the same this financial year. So what impact has this had on saving?

Whereas in previous years of good returns, people were eager to salary sacrifice and take advantage of the government's offer to match their savings on a dollar for dollar basis up to a specified limit, now they are not so eager to put their money away. Not only can they not access it until their retirement, but due to the global recession they might well have need of that extra to meet their mortgage repayments, or put food on the table.

However, even though the next year or two might not give very good returns on your superannuation fund, history has shown that the trend for investment always continues upwards, even though within that trend there are some declines. So don't throw your superannuation fund plans out the window just yet. They are sure to come good eventually.

And the picture is not all negative. As good often comes out of bad, so this downturn has caused the experts to start questioning if there may not be another way to actually run superannuation funds in a way that is better for the investor. To put it more plainly, they are wondering if all those fees and charges are really necessary.

Since there is over 1 trillion dollars in the more than 300,000 funds Australia-wide, that mounts up to a great deal lost to the investor in fees, especially when those fees operate on a commission. Some experts believe that superannuation funds should be of the not-for-profit variety.

Another question under debate is the default option for investing the funds. That is, the fund manager simply invests where he sees fit, when the investor has no preference. Many people believe that they either have no say, or not as much expertise as the fund manager, but this is not always the case.

While some funds do not diversify widely or are not active in buying and selling shares, this may not always be a good thing. But more activity increases the cost since buying and selling both incur fees. And while diversity is good, too much can weaken the investment, with gains so diluted as to be insignificant. Another point is that government should certainly not become involved in dictating what assets should be purchased.

Mel C writes about a variety of subjects including Superannuation Funds and self managed superannuation funds.