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Enough Wealth: What Asset Mix to use in our Retirement Account?

Thursday, 7 June 2007

What Asset Mix to use in our Retirement Account? (Related)

Now that our Self-Managed Superannuation Fund (SMSF) has been setup and the initial $200 contribution was processed OK via the ANZ V2 bank account, I'm starting to plan what asset mix the SMSF should contain, and what specific investments to make when our retirement savings are transferred into the SMSF next financial year. One complication of using a SMSF is that it will pool the retirement savings of DW and me, although the balances are reported indivdually based on each members contributions.

We currently have separate accounts with BT Employer Superannuation, and have slightly difference asset allocations in our accounts. Luckily our personal asset allocations are close enough to be able to get by with one asset mix that will suit us both in the SMSF:

Au Shrs Int Shrs Fixed Int Property

Overall 48.82% 39.33% 2.19% 9.67%

Me 48.11% 40.46% 0.59% 10.83%

DW 52.64% 33.18% 10.81% 3.37%

SMSF Plan 50.00% 40.00% 0.00% 10.00%

Another consideration with the SMSF will be ensuring that the investments are easy to monitor and can automatically provide the required transactional details to the SMSF administrator. eSuperFund (the administrator of our SMSF) can access transactional data for any investments done via the e*Trade brokerage account that was setup for out fund. Therefore I plan on buying any individual stocks using e*Trade and to also make mutual fund investments via e*Trade. Fortunately e*Trade rebates 100% of fund application fees (typically around 4%), so there's no issue with investing in mutual funds via e*Trade.

As the whole point of shifting our superannuation from BT to a SMSF was to save on fees we'll probably invest mostly via the CDF Australian Index Fund (which has a MER below 1%) and Vanguard Index Funds - Australian Shares Index , Global Shares Index, Property Securities Index. However, Vanguard charges around 0.90% MER on the first $50K invested in a fund, 0.60% on the next $50K, and 0.35% on any amount over $100K in that fund. Putting all our SMSF investment in just the Vanguard LifeStrategy HighGrowth fund would reduce the overall MER from around 1% to around 0.50% initially, and it would trend towards 0.35% as our SMSF value increased over time.

Fortunately the Vanguard LifeStrategy HighGrowth fund has an asset allocation close enough to our desired mix:

Au Shrs Int Shrs Fixed Int Property

HighGrowth 48.00% 32.00% 10.00% 10.00%

A Projection of our SMSF Starting Balance, Contributions and ROI shows roughly how much the fees will be over time:

Assumes

10% pa

'000 '000 '000 '000 Fees as Fees as

FinYear Start Add Earn End % of SMSF % of ROI

2007/2008 $360 $54 $36 $450 0.57% 7.15%

2008/2009 $450 $54 $45 $549 0.53% 6.49%

2009/2010 $549 $54 $54 $658 0.50% 6.02%

2010/2011 $658 $54 $65 $777 0.48% 5.66%

2011/2012 $777 $54 $77 $909 0.46% 5.38%

2012/2013 $909 $54 $91 $1,054 0.44% 5.16%

2013/2014 $1,054 $54 $105 $1,214 0.43% 4.98%

2014/2015 $1,213 $54 $121 $1,389 0.42% 4.83%

2015/2016 $1,389 $54 $139 $1,582 0.41% 4.71%

2016/2017 $1,582 $54 $158 $1,794 0.41% 4.60%

2017/2018 $1,794 $54 $179 $2,027 0.40% 4.51%

2018/2019 $2,027 $54 $203 $2,284 0.39% 4.44%

2019/2020 $2,284 $54 $228 $2,567 0.39% 4.37%

2020/2021 $2,567 $54 $256 $2,877 0.38% 4.31%

2021/2022 $2,878 $54 $288 $3,219 0.38% 4.26%

2022/2023 $3,219 $54 $322 $3,595 0.38% 4.22%

2023/2024 $3,595 $54 $359 $4,009 0.37% 4.18%

2024/2025 $4,009 $54 $401 $4,463 0.37% 4.15%

2025/2026 $4,463 $54 $446 $4,964 0.37% 4.12%

It's interesting to see how large a chunk of the annual investment earnings are being consumed by fees, even in this low fee arrangement.

Enough Wealth (Related)

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MCM001

Thursday, June 7, 2007

Enough

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