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Maximising returns through aggressive super

I have an industry super fund which defaults to a pretty safe range of investments. Given that I am only 29, should I be trying to generate better returns by being more aggressive?

Great question and it shows you have looked into your super fund, unlike many Aussies.

Given your age, it makes sense to consider what kind of risk you want to take on board. I recall a mate of mine, now 53, who asked me about 15 years ago what he should do and I told him that he was being a tad too conservative given his age, but it suited his personality. He could have lost over $200,000 because of that decision to be conservative.

In this case, I have assumed that the careful fund returned eight per cent while the more adventurous came up with 13 per cent over the 15-year period. Now, if my mate was in his 50s when he asked me the big question I would have gone for the conservative option. However, at a young age I think you can afford to take a few more risks but it has to be with a good fund from a big, well-known financial company. Word of warning, you will get some big losses when the stock market heads earthward but in the rip roaring, boom years it should more than make up. Now note, this is all based on generalities and odd things can happen such as long, protracted periods of share price decline, severe recessions and even depressions are possible and that’s a chance you take when you invest outside safe, fixed deposits and big banks.

Some investors actually mix up their risks by splitting their investments between pretty safe and a little bit risky to try to get a result better than a fixed deposit interest rate but you have to understand that as you go for higher returns you are ramping up the risk. Being 29 and assuming you work until 65, that’s 36 years. If you can average an eight per cent return after tax on your investments and you have $50,000 in super now, this would be about a $1 million on retirement! As you can see, for 20- or 30-somethings, their super ponderings represent a million-dollar question.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Published on: Monday, November 22, 2010

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