An asset management firm has encouraged younger Australians to investigate higher-risk superannuation options for better returns.
According to Innova Asset Management’s analysis of APRA data, 5.2 million young Australians are missing out on higher super returns from being in low-risk MySuper accounts.
The firm discovered that these super options which default to a balanced investment mix underperform compared to other investment accounts.
An all-equities portfolio consisting of Australian shares and unhedged international shares outperformed against typical MySuper balanced funds by 13.6 percentage points over the decade ending 1 September 2023, Innova found.
Dan Miles, Innova managing director and co-chief investment officer, said this was due to the insufficient risk of default super options.
However, he noted that many younger investors can afford higher-risk options as their retirement is decades away.
“MySuper products were designed to cater for a largely disengaged customer base given superannuation’s distant payoff. Those least likely to be engaged – and so invest in default MySuper products – are young people with lower education, those on lower incomes and people with lower financial literacy,” Miles explained.
“However, even younger Australians on higher incomes with relatively higher levels of retirement savings remain invested in lower-returning MySuper products.”
As a result, being allocated to a default super offering does not align with many investors’ long-term goals, presenting an unadvised market of younger Australians who can benefit from higher equity risk investment options.
The managing director added: “Younger investors will need to generate more wealth through superannuation to allow them a comfortable retirement income. While younger investors have the benefit of longer working lives and a rising superannuation guarantee, they will need stronger long-term returns.
“Younger Australians who are by default investing in MySuper products would be better off with financial advice. This represents an opportunity for financial advisers to offer more affordable and scaled financial advice to young Australians.”
