Saving smarter

These last few years have been confusing for Australians thinking about retirement: when they look at what the experts have done with their money, they see it going backwards, or growing very slowly.
The 2010-11 APRA figures over the decade to June 2011 show that the average return in large super funds was 3.8 per cent per year. That was the overall average: retail funds earned just 2.9 per cent. After accounting for inflation, which has averaged about three per cent over the same period, savers have received little-to-no "real" return.
One of the standard "expert" remarks about investing is that you have to skew your super to higher-returning equities, or you won't have enough to retire on. But global shares suffered 40-50 per cent losses in 1987, 2001, and again in 2007-08.
The other extreme is to ask you to accept very low returns on your money for little or no risk.
I believe in a 'middle way' solution: a portfolio comprising a mix of short-term bank accounts and term deposits combined with variable rate bonds.
By diversifying your portfolio across these investments, the risk you are taking is not much higher than cash and much lower than equities - while receiving very attractive returns.
Many big fund managers and most financial planners do not steer their clients into these products. While many offer bond-based products, when you select the 'default' setting in your super fund, you are normally placed in a 'balanced fund', which typically gives you a total exposure to cash and bonds of not much more than 10 per cent.
In other words, the super option most Australians are in - 'balanced' - will see you about 80 to 90 per cent exposed to Australian shares, global shares, and "equity" risk in commercial property, private companies, and hedge funds.
Recently, one of our branch principals at Yellow Brick Road dealt with a retiree in Queensland with $800,000 in a bank account, earning less than 2 per cent per annum. By putting his cash into a portfolio that exposed him to both institutional bank accounts and variable-rate Australian bank bonds, this retiree will now earn an extra $25,000 per annum.
Another case is a Sydney family that sold an investment property and needed to park $705,000 before they bought another home in 6-12 months time. This family was going to put the money in a bank's "bonus" savings account paying 5.20 per cent for a few months, which then dropped to a very low 3.5 per cent.
Instead, they will now likely earn an extra $9,000 per annum by investing in a diversified portfolio of bank deposits and bonds.
The point I try to get across to those who are worried about retirement - or who are unhappily retired - is that they have to get their minds out of the approach of 100 per cent shares or 100 per cent bank accounts.
There are smarter solutions out there for you. Start by becoming informed, and always get advice before you act.
* Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have.