Should I consider transferring my super to my partner’s fund if there’s a difference in returns between my superannuation balanced fund and his?

Question: I have just received my half-yearly superannuation statement and my balanced fund has returned about 3.5 percent for the 6 month period and my partner’s super fund statement shows that his balanced fund shows a return of 6 percent over the same time. Should I be changing my super to his fund?

Changing funds is a simple process and in most cases, your new fund will often facilitate the rollover of your existing benefits and will help you set up the new arrangement with your employer if you are still working. The attraction for them is the additional funds under management which translates to more fees collected.

One thing to be aware of is what happens to any life insurance coverage that might be in place if you have money still in accumulation mode. If you are retired, then it might be an opportunity to review the need for any life insurance cover because at your age, it is likely to be very, very expensive. Premiums will be hundreds of dollars per year, easily getting into thousands.

Weigh up if your partner will be financially OK if something happens to you without insurance and if the answer is yes, then maybe it is time to cancel it altogether.

However, if cover is needed and before the change-over, make sure that you can transfer the existing insurance coverage to the new scheme without further medical evidence.

The bigger issue however, is whether the move will in the long term, deliver a better outcome ?

Use of the term “Balanced” when describing an investment option can vary dramatically from one fund manager to the next. Diversified superannuation funds described as Balanced, Conservative and High-Growth, try to explain the risk and return trade off of that investment option by using names such as these.

The fund itself will be investing in a mixture of growth type investments which will include shares and property.

Generally, these types of investments are regarded as riskier assets. While they provide good returns, they can also drop significantly in value over a very short period of time.

Safer investments which include cash and fixed-interest type investments generate lower returns but are generally safer.

We call the exposure to each sector the “asset allocation”.

What’s involved and are there any problems in changing funds?

Significantly, there is no legislative requirement that sets out how a particular diversified fund is structured or what label is to be applied. A Conservative fund might generally have an asset allocation of 30 percent invested in the riskier, growth type assets and 70 percent of all money invested in the safer investments. Unfortunately, some Conservative funds have up to 60 percent invested in areas that many professional investors would consider risky. These variations in the risky versus safety mix are often more pronounced in the “Balanced” investment option.

Typically, you might expect a mixture of 60 percent growth assets and 40 percent safe assets, but I have seen “Balanced” options in some very large funds with an exposure to riskier assets of more than 90 percent!

These funds can sometimes show very high returns when markets are booming, but drop significantly if there is a market correction.

90 percent of your fund’s total investment returns are “caused” by the underlying asset allocation and not the fees or the investment manager’s expertise.

Before changing funds, check to see what the actual mix of investments is within your current fund, compared to your partner’s underlying mix. You might find that the Balanced mix of your partner’s fund is the same as the High-Growth option of your existing fund.

You might simply change your investment option, to end up with a similar mix which could generate a similar result.

That costs you nothing to do and you can generally do this online.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.