The world’s cheapest superannuation fund – Barefoot Investor style
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We are still in the setup phase of The Barefoot Investor book. In my last blog post Step 2 – Set up Your Buckets we looked at which accounts we needed to set up for your buckets and In this blog post, we will look at the best super fund to open according to Scott Pape and the Barefoot Investor book.
For those of you that don’t know for 10 years, I was a professional athlete and as an athlete not only was I performing on the track I was running my sporting career as a self-employed business. I had no guidance about having to pay your own super. So I did what most athletes would have done and not put any funds to my superannuation. Since not contributing for 10 years I have seen my account get smaller and smaller, but now I’m on a quest to inform others to be more conscious of it.
What is Superannuation?
I was first introduced to Superannuation when I landed my first ever part-time job. I was in year 10, and as part of my high school curriculum, all the students had to do work experience somewhere.
Did anyone else have to do this?
All my classmates obtained work experience in offices, health care practices and even some of them worked in their parents’ businesses but ended up getting an extra week off for the holidays.
I, on the other hand, thought I would try and arrange my work experience in a retail store.
Why retail, that isn’t aspiring?
I had a strategy as to why I chose retail. I was banking on the fact that once excelling in my work experience I could potentially land a part-time job in the store.
I landed a week doing my work experience at Jeans West. For some readers, you may not even know what Jeans West is.
Jeans West was a big clothing brand during the late 90’s and early 2000’s. I did a week worth of work experience working out at Southland and I got paid $5 a day. I had to catch the bus to work and I punched out 8 hours learning how to fold clothes, using the cashier and customer service. All things retail.
At the end of the week, I got asked to come back and become a casual employer. I got transferred to the Chadstone store when I finalised all the paperwork for pay and tax I got introduced to the word superannuation.
I did what I assumed was the right thing and opened the superannuation account that was offered to me by Jeans West.
Since then I have had multiple part-time and full-time roles at many different organisation and every time I would make my superannuation the super that I originally started with.
What is super?
According to a quick google look up of the Oxford dictionary. Superannuation is the regular payment made to a fund by an employee towards a future pension.
The greatest tax dodge in Australia
According to Scott Pape from The Barefoot Investor
“Let me count the ways I love super:
First: for all the trash that’s talked about super, it’s still hands-down the greatest tax dodge going round. It’s even better than a Cayman Islands bank account, because the average worker can legally use super to cut their tax. While the top tax rate for individuals is 47 per cent (including the Medicare levy), you’ll pay just 15 percent on the money that goes int your super fund.
Second: you can retire with $1.6 million in super and you won’t pay a cent of tax. (And as long as ageing Baby Boomers keep voting their feet this is unlikely to change.)
Third: your super is protected if you go bankrupt.
And yet most people treat their super like the shirtless stoner trying to wash their windshield at the traffic lights (Do. Not. Look).”
The $226,484 difference
Going down the super rabbit hole is complex and as a 16-year-old signing that paperwork with regards to what super fund I was putting my contribution to, I had no idea what I was doing.
As I am now older and hopefully a little more mature I have realised that you need to look into your superannuation as it could be the difference of a whopping $226,484 in your super fund.
Scott Pape’s example in the book illustrated:
“Let’s say a 35-year-old has $50,000 in a fund and contributes $5000 a year over the next 30 years with an investment return rate of 8 percent. The difference between investing in a fund that charges 1 percent a year in fees and one that charges 0.02 percent a year is a whopping $226,484, according to the 2016 ASIC MoneySmart Managed Fund Fees Calculator.”
The Barefoot Investor Superannuation Solution
The barefoot solution is as followed:
Step 1: Google the following: ‘[The name of your fund] + PDS
This search will bring up a PDF of the product disclosure statement that almost no-one ever reads.
Step 2: Scroll to ‘Fees and charges’ section.
Your super fund should be charging you less than 0.85 percent a year in fees – total. If higher than that, you should seriously consider switching to a cheaper fund.
What super fund should I change to?
According to Scott Pape from the Barefoot Investor, he recommends the “Hostplus Indexed Balanced Fund. This fund charges a tiny investment management fee of 0.02 percent. In other words, 2 cents for every $100 invested.”
Anyone can join.
There’s no minimum balance.
The Hostplus Indexed Balanced Fund invests roughly one-third of its money in Australian shares, another third in international shares, and the rest in cash and fixed interest.
The world’s cheapest super fund thoughts and hurdles
Applying for the Hostplus Indexed Balanced Fund took around 10 minutes. I didn’t really have any hurdles with this one and all in all it was an easy experience. I rolled over some superannuation from my previous super account and it was super easy.
The Barefoot Investor Challenge
Like any good challenge, I want other people to join in the conversation and for this challenge, I will use the #barefootsakurachallenge.
If you are someone that has read this book and wants to join in on this challenge feel free to comment and write any hurdles you faced while doing the challenge and don’t forget to use the #barefootsakurachallenge.
Or how about you
Comment below if you have a question about any of today’s content or if there are any topics that you want me to cover.
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“I am an inspiring, visionary, expert, entrepreneur and performer, influencing and helping others in the world to live passionate, engaging, positive-minded lives and getting everyone to “Win Their Own Olympics.””
Sean Wroe’s Blog
PS. If you missed my previous post Step 2 – Set up Your Buckets
PPS. Get Your Copy of The Barefoot Investor Book here!