Ask An Adviser - Will A High Interest Savings Account Give Better Returns Than My Super Fund? (1)

Top answer provided by:

Chris Brown

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Hi Roy,

Thanks for your question and it’s certainly a topical one we’ve been hearing from people over 50.

Firstly – I would ask you to think more broadly that superannuation is not itself a type of investment. It’s better to think of a super fund as being a tax structure or an investment vehicle and within that you can save and invest into different types of investments (or ‘asset classes’) including shares, property, bonds, and cash.

So, if your super fund is dwindling it is likely to be due to some of the types of investments within the fund rather than the super fund itself.

Inside superannuation you can also have low risk assets for all or a significant part of your super - like cash and, depending on your fund, even a range of term deposits.

Superannuation also provides an extremely tax effective place to hold your investments. I don’t know your personal tax position, but should you have other taxable income sources then withdrawing your super and investing/saving in a bank account or investment outside super could mean paying unnecessary tax on the earnings.

If you are receiving Age Pension, there is probably not a great difference as to whether these savings are better inside or outside superannuation.

So, the question for me then is not if it’s super vs non-super, it’s more whether you should be invested in a diversified investment portfolio (like you may be already in super) or just in cash (like in an interest earning bank account).

I would recommend you review how much percentage you hold of your super in growth assets (like shares and property) and income assets (like cash and bonds) and see if that suits your comfort level. In general, I wouldn’t normally encourage anyone to be invested past 50% in growth assets in retirement- but you can find out more from MoneySmart.

I would also ask what is the purpose behind these funds and does this still match what you need them to do?

If the funds are not required immediately then a more balanced approach to your investment could still be a good fit as cash returns also do fluctuate, cash generally doesn’t provide a growing income stream to combat inflation over time, and in the long-term cash has not provided the same returns as a more diversified investment approach.

Its important to diversify and we believe in not having too much in any one extreme, i.e. all shares or all cash.

Even a balanced super fund portfolio has performed negatively this year due to Ukraine, inflation, etc. And we’ve had an unusual combination of share market falls but at the same time rare poor returns from normally safer bonds as well.

But this same investment mix has also provided solid returns over the long term.

Quite often the best course of action when investments move around is to do nothing as long as your goals or purpose hasn’t changed.

But I realise that can be hard to do which is why financial advisers like myself provide reviews, reassurance and behavioural coaching to clients to ensure they don’t make financial mistakes and can rest easy.

I hope this helps, Roy!

Thank you,

Chris.

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Article by:

Chris Brown

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