Hey guys, I have a tricky ethical question for you. I’m going over my superannuation account, and looking into investment options. My fund offers a socially responsible investment (SRI) option, and a high-growth option. Looking at the trends over the last 10 years, the SRI has kept more or less on par with a balanced investment.
However, aside from the market crash in 2009, the fund still rests about 3 to 5 per cent below the high growth options. As a 23 year old who works in the corporate world, I’m torn. On one hand, I see the need for stronger investment in socially responsible companies, and am very drawn to this option. However, missing out on an additional 3 to 5 per cent each per year stings, especially when you compound that over the next 45 years or so. Any thoughts? Thanks, Ethical Dilemma
Chart picture from Shutterstock
Dear ED,
Making superannuation choices is always tricky, because by definition it’s a very long-term investment, and we’re not always great at taking a long-term perspective. The final decision can only be yours, but here are some points to bear in mind.
It’s dangerous to assume that because the high-growth option has done well over the last decade it will continue to do so. Performance is never guaranteed; amounts can fall as well as rise. So while you might be sacrificing 3-5 per cent growth, you don’t know that in a decade the situation might not have reversed. You note that during the 2009 market crash the high growth fund was not doing so well by comparison: what if the year you choose to retire is another 2009 in performance terms?
Since you’re relatively young, the standard advice would usually be to go for the high-growth option now; there’s still plenty of time to switch to something less risky in the future. But that advice doesn’t take ethics into account at all. High-growth industries often trample over human concerns in their quest for profits. Superannuation is your money: would you really be happy knowing you were making more money because all the funds were invested in a cigarette company, for example? If that makes you uncomfortable, then the SRI option has to be worth considering.
One other thing: carefully check the fees associated with each option. If the growth calculations have been made without factoring those in, you’re not seeing a full reflection of the money that will be in the fund in either case.
Cheers
Lifehacker
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Comments
8 responses to “Ask LH: Should I Choose A High-Growth Or Socially Responsible Superannuation Fund?”
Socially responsible investments have been known to produce some good returns. One particular notable fund is the Perpetual Ethical SRI (Google it).
Most superannuation funds let you allocate your money to more than one option. You may want to consider splitting your money between the two funds and get a taste of both. This way, even if the SRI is 3% lower than the High Growth Fund, you only really miss out on 1.5% (if you go half-half for instance).
Lawrence
Source: Career in Financial Planning
Who cares, it won’t even be there in 5 years, let alone when you retire hahaha
Superannuation, what a brilliant idea, removing responsibility from individuals so unaccountable companies can invest (cough gamble) in your name, where you can’t even access your own money if you need it. Oh what joy I’ll have using my hard earned superannuation to pay medical bills when my teeth are falling out, to prolong the agonising years of decay, I’d much rather be dead
What a gigantic scam, and wait til the gov thinks they deserve a portion of your super, a lot can happen in 40 years. A lot can happen in 5 years if things get anymore unstable than right now
Imagine if someone forced you to give them money to gamble and they promised to give you profits in 50 years time, you’d say they were nuts, no matter how many times they won, oh and they still need to extract fees, and they can because it’s the law… a licence to steal!
Why is this bloody mandatory?! I didn’t vote for this, none of us did!
When will the people finally be given a choice
Whilst I agree with Handsoff that it would be nice to have more control of our retirement savings, I also think superannuation had reasonably good intentions when it was conceived.
You just need to take a look at the general working population and honestly tell me you would be happy with them investing their money for retirement on their own rather than superannuation funds doing it (albeit semi-responsibly)….Because with the masses in control, All I see is Jet-skis, Jet-skis everywhere.
I have to agree with you wholeheartedly on that Handsoff; literally the first thing I said when I turned 18 and started getting sent Superannuation application forms/brochures was ‘Why the bloody hell would I want that!?’
Not wanting to niggle with some of your points which have some validity, although I feel some disagreement, I really take issue with “I didn’t vote for this”.
Remember all those elections in the 1980s? The Hawke/Keating governments introduced this, and they were re-elected and went for 13 years. That’s pretty much a resounding “The Australian People voted for this over and over and over”. I didn’t vote for Gina Rinehart to get her hands on my taxes for a 30% private health insurance rebate either, but sadly the Australian people did (over and over and over). That’s the price of democracy, sometimes we just have to accept that majority rules.
Lol, the only thing I knew about in the 80s was lego…
While I do not know what motivated people to vote for labor for 13 years, perhaps some policies were more appealing than others, my point is we’re not given a choice to actually pick which policies we actually want. Often with gov programs/policies, their nature and impact is not known until put in and then they are almost impossible to change or rollback.
I would like to vote on issues and policy, not on pollies or parties, I don’t care who has a bigger smile or who kisses more babies as long as they do what the people want.
Just give me a way to opt out, and I’m happy
If I think superannuation is a good idea, I can still sign up with my favorite super company
Otherwise you might as well make insurance mandatory, and make everyone eat a salad a day to make sure they live a long disease free life
Another option is investing with an ethical superannuation company (e.g Australian Ethical) which then have a range of investment options from low to high-risk all of which are ethical though.
That’s what I did after some research.
I think the checkout said it best:
http://www.youtube.com/watch?v=c7c4Z6rZy3U
Cats > all super fund managers
Pick the option with the lowest fees, by the time you retire the gross result will be the roughly same, except you’ll have paid less funds and thus have more money net.
Or get an awesome fund picking cat.
EDIT: Should mention that MySuper products aren’t always the best. Actually at QSuper, their MySuper products have some of the highest fees (though still lower than other funds like Commbank).
Start your own super fund. Do the study, there is a lot of compliance but you will be in control and it is your future.
If you don’t wish to go down the hard track there are super fund managers who let you have the choice of what is done, but keep an eye on those fees or you will be ripped off.
The less you know the more you will pay, take your eye off what is going on and you will pay through creeping fees.
BTW the market crashed in 2008,
The government will also be out to get more from your future retirement funds to cover theirs.
Of course you can be socially responsible and build funds in super, will it grow faster than the high growth on current offer, how long is a piece of string?
One last but important point is that you can always switch to a different super fund and it is easy to do.