Zest! / SUPER 101

Slow and steady wins the race

It’s usually best to focus on the big picture with your super, but when it comes to super contributions, it’s the little things that matter.

By Ofalyn Ayuk - 3 min read


A little about Ofalyn

As a Member Solutions Consultant at Russell Investments, Ofalyn Ayuk understands all the ins and outs of super and retirement legislation, and loves to answer questions and help members.

As we come to the end of a year, it’s usual to reflect on where we are at in life and where we’re headed. Part of such reflection and planning is to focus on the big picture and ‘not sweat the small stuff’. Superannuation is no different—a focus on long-term returns, lifetime savings goals and long-term planning are all key to growing your super savings. However, as is often the case, there is an exception to this ‘rule’.  

It comes in the form of additional super contributions (before or after tax), where every small addition does indeed make a difference to your super savings. Making small regular additions also helps reduce investment risk. You might wonder how. That's thanks to dollar cost averaging, which simply refers to adding (relatively small) fixed amounts to an investment (like super) at regular intervals, regardless of market conditions. 

It might sound technical, but did you know you're already making the most of it? If your employer is making regular superannuation guarantee contributions into your super account, you are already dollar cost averaging into those investments. So if you make additional regular super contributions on top of this, then you may be in a doubly fortunate position. 

What’s in it for you? 

There are obvious benefits to saving regularly into your super fund: the more you add, the more you could end up with at retirement. But the beauty of dollar cost averaging goes beyond adding more.  

The biggest benefit is that it reduces your investment risk as it helps to keep you investing through market ups and downs.   

Here’s an example 

The example below shows how this might work in practice. Say you salary sacrificed $700 into a super fund every month for a year. You would receive a different number of units each time.   

 Month  Contribution  Unit Price  Units purchased
January   $700 $1.060  660.38
 February   $700 $1.065  657.28
 March   $700 $1.060  660.38
April    $700 $1.032  678.29
 May  $700  $1.005  696.52
 June   $700  $1.000  700.00
 July   $700  $1.001  699.30
 August   $700  $1.046  669.22
 September   $700  $1.062  659.13
 October  $700   $1.120  625.00
 November   $700  $1.040  673.08
 December   $700  $1.100  636.36
 Total  $8,400    8,014.93

At the end of the 12 months, in this fictitious example, you would have around 8,015 extra units in your super account, which would be worth $8,816.

If you contributed $8,400 all in one hit, you would end up with anything from $8,250 (7,500 units) if you bought when prices were at their peak, to $9,240 (8,400 units) if you bought when unit prices were at their lowest. 

(This example is to be used for illustrative purposes only.) 

While drip feeding money into your fund may mean you miss out on getting the full benefit of investing everything at the best possible time, you also won’t lose your nerve for contributing when markets are weaker. This is important, because psychology often gets in the way of investors achieving the best outcomes. Time and again, people lose out by retreating in market downturns. Our cycle of market emotions chart illustrates this in more detail. 

Make the most of it 

With your superannuation guarantee contributions, you have little choice about when you invest, but you do have the option to contribute more of your own money into your super account— and you can maximise dollar cost averaging by making these regularly. 

  • You can make regular before-tax contributions, using a salary sacrifice arrangement, which is where a part of your salary goes into your super before income tax is deducted. Talk to your payroll or human resources team to set this up.   
  • Alternatively, you can make regular after-tax contributions via BPAY®. Call us to find out more.  

Either way, (provided you’re staying within contribution limits) you’ll be investing a set amount of money on a regular basis and making the most of super’s tax-friendly environment and also the benefits of dollar cost averaging.

It all adds up 

Of course, it doesn't mean your super is completely protected from all market volatility, but the combination of employer contributions and additional super contributions could help you to stay committed to growing your super through thick and thin. And that steadfastness is at the heart of dollar cost averaging. 

So, do sweat the small contributions to super—they all add up.  

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