# Superannuation funds poor returns for cash



## Bill M (6 March 2008)

I am a member of an industry Super Fund and I was just going through it's last statements and magazine that they sent me. Generally their return for most of their different types of investments are quite reasonable and in line with the general market. However I did notice their cash options have very poor returns.

These are the returns for the last 12 Months to 31 December 2007.

Australian fixed interest---1.56%

Diversified Fixed Interest---3.92%

International Fixed Interest---4.84%

Cash---4.96%

Currently I can get 7.3% for my at call account and 8.2% for a 1 year term deposit outside of super. After tax that gives me 5.5%. If you are will to buy floating rate notes or corporate bonds you can do much better than 5.5%.

My question is how is it that anyone off the street can make 5.5% net after tax by themselves but super funds with less taxes do so poorly? They do have management fees but they are very low and not of big consequence as the funds are non profit organizations. Am I missing something or am I better off by staying out of super? I am talking of the cash options only.


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## theasxgorilla (6 March 2008)

I'd love to know the answer to this too.  Have noticed the same thing.

ASX.G


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## Uncle Festivus (6 March 2008)

Hi Bill, Where are you getting 7.3% at call?


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## Prospector (6 March 2008)

Their returns for cash in Australia should be much higher than that, but if heavily geared into the US, then obviously much lower.

6.8% is the current rate for at call online access to money with NAB.  They should be able to beat that easily, given the $$$ the Super fund has to invest.


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## TheRage (6 March 2008)

Bear in mind that the cash rate on most super funds is a unitised entity just like all other pooled investments so it is not set at a bench mark like a fixed term deposit. It has a buy and sell price depending on the activity of those within the fund and the supply and demand for it. 

Super funds also take their internal management fee and earnings tax also comes out of this return. Remember earning 7% outside of superannuation in a fixed term deposit on a marginal rate of 46.5% would effectively be a return of 3.35% after tax. Therefore the net return of 4.96 doesn't seem too bad if you were a high income earner. The only way to try and get around all of this is a SMSF with high Fixed interest un-unitised component with lots of Aussie shares mixed in with Franking credits to wipe out any earnings tax. This is not advice and should not be taken as such.


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## Bill M (6 March 2008)

Uncle Festivus said:


> Hi Bill, Where are you getting 7.3% at call?




Right here Uncle


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## Tysonboss1 (6 March 2008)

Bill M said:


> I am a member of an industry Super Fund and I was just going through it's last statements and magazine that they sent me. Generally their return for most of their different types of investments are quite reasonable and in line with the general market. However I did notice their cash options have very poor returns.
> 
> These are the returns for the last 12 Months to 31 December 2007.
> 
> ...




If they are invested in bonds, as the interest rate rises then it can have a bad effect on exisiting bonds,

For examaple if you invested in bonds 2 years ago for 10 years at at 5.7%, but today they are writing new bonds for 10 years for 7% then your original bond will be traded at a discount to the new bonds,

So even though your old bond is still paying 5.7% interest it's market value may drop 4% compared with the new bonds bringing the total return to 1.7%,..... 

When interest rates are trending up it is bad for exisitng long term fixed interest,... however the reverse happens when interest rates trend down, you may find that your deposit is paying 7% interest but as the rate trends down you can sell your bond at a 5% premium bringing the total return to 12%.


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## Bill M (6 March 2008)

Tysonboss1, yes the bond issue accounts for the fixed interest accounts but a cash account should really return more than 5% particularly as they are only taxed at 15%.

I do not have a SMSF but it seems like I might have to start one up, that's another thread on it's own.


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