Should I switch my super to a higher growth option?

Question

I’ve noticed there are options like Growth and Higher Growth that seem to offer better returns based on the comparison tools. I’m thinking about switching to a higher growth option and leaving it for the long term.

Is this a smart move? Are there any risks I should be aware of, and do I need to keep a close eye on the returns if I make the switch? Thanks!

Answer

Hey Emily.

For people with a long term timeframe where we can’t pull money out for ages, choosing a higher growth/risk option is typically a good idea.  It can make a significant difference over a couple of decades.

Higher growth options or choosing 100% shares will mean your super fluctuates in value more (including down from time to time).  But given there’s a long timeframe involved, the market has time to recover and these options typically lead to higher returns over time.

By the way, you actually want to do the opposite – don’t look at it.  Because of the fluctuations, you need to leave it untouched to work its magic.  People often get worried and sell / switch to low risk because they see the market is down – the exact opposite of smart investing.

Personally, I have my super set to 100% shares and will leave it like that for the next 30 years.  I believe this will vastly outperform the average ‘balanced’ option, which typically holds 20-30% cash/bonds in their portfolios, which provide lower long term returns.

Hope that helps.

Answer

Switching to a higher growth investment option can be a smart move, especially if you are considering a long-term investment horizon. Higher growth options typically invest a larger proportion of funds into growth assets like stocks and property, which historically have offered higher returns over the long term compared to conservative assets like bonds and cash.

However, with the potential for higher returns comes higher risk. Growth assets are more volatile, meaning their value can fluctuate significantly in the short term. For example, during the 2008 financial crisis, global stock markets experienced substantial declines, but they generally recovered over the following years, rewarding those who held their investments over the long term.

When considering a switch to a higher growth option, it’s important to assess your risk tolerance. Can you handle seeing your investment balance drop during market downturns without panicking? It’s also crucial to consider your investment timeframe. If you have a long time before you need to access your money, you’re more likely to ride out any volatility and benefit from the potential higher returns.

Keeping a close eye on the returns after making the switch is a good practice, but it’s also important not to react hastily to short-term market movements. Regularly reviewing your investment in the context of your overall financial goals and adjusting as necessary is advisable, rather than constant monitoring.

Pearler offers tools and resources that can help you understand and manage your investments according to your financial goals. Utilizing these can aid in making informed decisions and staying aligned with your long-term objectives.

You can find out more about this topic here: Investing Q A Strong Money Australia

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Remember also that your super is to last you the rest of your life, not until you turn on your pension. You need growth beyond then. So add on 20-30 years to the timeframe (I hope).
An observation from the drawdown of 2 years ago. My super fund had a couple of high growth fund options, one marked ethical and the other not. (Surprisingly) the ethical option had a lower management fee, and I switched from the high growth to the ethical after being there for 10-15 years. The mix in the ethical fund included a lot more tech stocks which were hardest hit.

Answer

I switched to the high growth option a few years ago, as I won’t be of retirement age for another 25 years or so. If I’d realized sooner I would have done it heaps earlier.

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Emily Chen.

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Dave Gow - Strong Money Australia

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