Plus, if you’re a low-income or middle-income earner, the government could also make a contribution (known as co-contribution) to your super, up to a maximum amount of $500.īefore adding to your super, consider your financial circumstances, contribution caps that may apply, and tax issues. You can also make after-tax contributions from your take-home pay. This could reduce the amount of tax you pay if you pay more than 15% tax on your salary. You can make a before-tax contribution to your super by sacrificing part of your pre-tax salary. There are plenty of ways, aside from employer contributions, you can add to your super balance today to help achieve the retirement lifestyle you want down the road. Adding to your super in your 20s could make a very big difference to your final super balance. Using the snowball analogy mentioned above, the earlier you can get the ball rolling the longer it will have to accumulate compound returns and grow. Start compounding early to have biggest impact on your retirement savings Given the money put into your super could be ‘locked away’ for 40 years or more (depending on how young you were when you started working), it makes sense that it doesn’t just sit there doing nothing it should be put to work (invested) to give it the best chance of growing over this long-term timeframe. Investing over a longer timeframe is usually done with the expectation of higher returns. READ MORE: UNDERSTANDING INVESTMENT MARKET CYCLES AND SUPER This is why it can be beneficial to diversify your retirement savings over a variety of asset classes that can reduce volatility and offer long-term growth potential. Typically, the investments that have the potential for the highest rates of return, such as shares, also have highest levels of volatility. When returns go up and down a lot, it’s called ‘volatility’, and markets move through ‘cycles’ of stability and volatility. Investment returns aren’t the same every year – some years they’re higher and other years they’re lower, and can even be negative. The longer you invest, the more time you have to ride out market ups and downs. The old saying, “it’s not about timing the market, but about time in the market,” has proven true over the years. Compound returns and investing for the long term Every time you get a positive investment return, it increases your balance, enabling your retirement savings to grow over time. When investments grow, you get a return – money into your account. Your super fund puts it to work, investing it in various assets with the aim of growing your balance, ready for your retirement.īy investing the money, it gives it the best chance of growing. Your super isn’t money that just sits in your account waiting for you to retire. Your super is an important investment – and it’s yours While history shows that members’ super balances have increased over the long term - if a member had invested in AustralianSuper’s Balanced option over the past 20 years, they would have more than four times their initial investment today 1 - there are periods when investment markets are volatile, and returns are negative. Investment risk is the possibility that an investment may fall in value or not meet return expectations. It’s important to remember though that investing is not without risk. These additional contributions increase your balance and will grow and compound as additional returns are earned. The returns on your returns also accumulate over time. Your balance will also grow through any contributions put in, either via your employer as part of the Superannuation Guarantee, or by you through voluntary contributions. The process occurs repeatedly, continually accumulating over your lifetime, i.e. In the context of super, compound returns are earned on your entire account balance, through the daily crediting rate.Īny money earned grows your investment balance and continues to be invested by your fund. Like the snowball, your super balance can grow too. The snowball represents your balance, and the layers represent the compound returns.Įxplore how compounding can give your super a boost. That’s because it’s adding layer after layer. Picture this: A snowball rolling down a hill it may start small, but it grows the longer it rolls. In relation to your super, put simply, compounding is the investment returns generated on the returns you’ve already earned. In fact, it’s often referred to as one of the great wonders of investing. Understand the basic concept and see how the power of compound returns may help boost your balance over the long term.Ĭompounding is an important part of investing. 13 February 2023 Compounding is one element which can help your super grow.
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