Time to Re-evaluate: Young Aussies Urged to rethink low-risk super strategies

In an era of economic uncertainty and fluctuating markets, the importance of prudent financial planning cannot be overstated, especially when it comes to retirement savings. Recently, young Australians have been encouraged to reconsider their low-risk superannuation accounts in light of evolving market dynamics. This advice is supported by a comprehensive analysis conducted by Innova Asset Management, which delves into the potential limitations of sticking solely to low-risk options, using data provided by the Australian Prudential Regulation Authority (APRA).

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The Landscape of Low-Risk Super Accounts

Low-risk super accounts have conventionally been perceived as secure options for retirement savings. These accounts typically prioritise stability over growth, often investing in cash, fixed-interest assets, and conservative equities. While they offer a sense of security, they may not necessarily yield optimal returns over the long term, particularly in an environment characterized by historically low interest rates.

Insights from Innovas Asset Management's Analysis of APRA Data

Innova Asset Management, a prominent financial advisory firm, recently analysed low-risk super accounts using data provided by APRA. Their findings indicate that while these accounts provide stability, they may fall short in terms of capital growth, leading to diminished retirement savings over time, especially when considering inflation and fees.

According to Innova, young Australians may be particularly impacted by the conservative nature of low-risk super accounts. With a longer investment horizon, young individuals have the opportunity to explore higher-risk, higher-reward investment strategies that could potentially generate greater wealth accumulation over time.

"an underperforming MySuper (leaves young adults) $375,000 or 36% worse off"

The Perspective from APRA:

While acknowledging the value of low-risk options within a diversified portfolio, APRA cautions against overreliance on such strategies, especially for young individuals. They encourage super fund members to adopt a balanced approach, incorporating a mix of asset classes, including growth-oriented investments with higher potential returns.

Further research by the Productivity Commission in 2018 suggests that being invested in an underperforming MySuper product could leave a typical new workforce entrant $375,000 or 36% worse off by the time they reach their retirement age.

The Case for Reassessment:

In short, young investors can afford higher-risk options as their retirement is decades away.

Are you curious about how your super fund performs? Use the ATO’s YourSuper Comparison tool.

If you find that your MySuper product is underperforming it’s important to seek financial advice on how you could improve your retirement outcomes.

Financial Advice Disclaimer:

The information provided in this article is for general informational purposes only and should not be considered as financial advice. Before making any financial decisions, it is important to consult with a qualified financial advisor who can provide personalized advice tailored to your individual circumstances. Remember that past performance is not indicative of future results, and investments carry inherent risks. We do not endorse or recommend any specific products or services mentioned in this article, and you should conduct your own research before making any decisions. By reading this article, you agree that neither the author nor any associated parties shall be liable for any damages arising from the use of or reliance on the information provided.