Factors to Consider When Investing Superannuation Contributions

This paper examines the essential factors an employee should consider before investing their superannuation contributions in any super fund, mainly Defined Benefit Plan or Investment Choice Plan. It also examines the issues that may be related to the decision making regarding these particular investments.

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CORPORATE FINANCIAL MANAGEMENT
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CORPORATE FINANCIAL MANAGEMENT
Introduction
It is the most fundamental concern many people have, particularly the tertiary sector
employees, about investing for retirement: "Where should I invest my funds?" Because of their
tax benefits or advantages, superannuation should be a central part of the tertiary sector
employees’ savings plan. However, for these savings or investments plans to be successful, the
strategic decision is required when making a consideration where to invest. Strategic choices
focus on the goals or the objectives of an employee, and consequently revolve around the
creation and maintenance of a broad financial base system which ultimately provides necessary
support in pursuit of the goals or the objectives (Feldman and Beehr 2011). Therefore this paper
will examine or assess the essential factors an employee should consider before investing their
superannuation contributions in any super fund, mainly Defined Benefit Plan or Investment
Choice Plan (Altman and Hotchkiss 2010). Finally, the paper examines the issues that may be
related to the decision making regarding these particular investments.
Important factors to be considered
You are a tertiary sector employee, and you need your super fund perform at its very best,
with least number of risks, to ensure better returns for the future. For this case, therefore, it is
essential that you have a full insight into your superannuation contributions, the fees, it attributes
and the long-term prospects that may be involved. Otherwise, there are several options to choose
from when it comes to the super fund, however, making the right choice will set you up for a
better and comfortable life after the retirement. Below is the examination of seven fundamental

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factors an employee should consider when selecting a super fund, and there is also a precise
outline of the possible risks that may involve when investing your superannuation.
i. Fees
Perhaps, the lower amount payable as fees the better the super fund. It very crucial for an
employee choosing a Defined Benefit Plan to compare the prices across different accounts based
on the type of fund the employee has and the balance in the super account (Benartzi et al. 2011).
It has been seen that account fees can easily detract from a person’s savings or investments and
influence the overall payout when he or she retires.
ii. Profitability or the Extra Benefits
Technically, nobody will put his or her superannuation contributions where it will not
earn the profit. The employer is required to pay more the nine point five percent minimum for
specific superannuation (Ambachtsheer 2011). Consequently, if an employee contributes an extra
amount of money, he or she is entitled to receive the benefits of the additional interest and a huge
payout when the day for retirement comes. Therefore, if this factor pleases an employee, he or
she can choose a super fund basing on its flexibility due to the long-term benefits.
iii. Services
Unique attributes, for instance, investment advice or the financial planning can be the
integral or central part of the Defined Benefit Plan. It is, therefore, very significant for a tertiary
sector employee to carry out brief but specific research to assess or see what services this
particular fund provides, and how they are compatible with your goals or objectives (Marglin

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2014). Also, this is very essential too because it will ensure you are or subscribing to the services
you don't need.
iv. Investment options
An excellent super fund should at least provide some investments opportunities with
varied options to accommodate your demands with the lower chances of risks. It is advisable to
make comparisons on funds with same investments or with those that possess similarly mixed
shared, cash and fixed interest (Rickwood and White 2009). If perhaps, you are a decade or more
years from retirement, then you should make your investments mostly in Australian or
International shares, and it is best if you do it with a low-cost firm fund or the fund that allows or
accords you the opportunity to make a choice on which shares to purchase.
v. Performance
A tertiary sector employee should consider looking at the trends of the performance of
the super fund, Defined Benefit Plan for five year period, not just one year. They should always
be reminded of the fact that superannuation is a long-term investment and they want to be
confident that their funds are performing over the much extended period (Gallery et al. 2011).
similarly, the employee should be well conversant with the taxes and fees of the super fund when
making comparison on the performance of particular funds.
vi. Insurance
In most cases, industries provide income protection, life assurance, total and permanent
disability insurance. For tertiary employees, therefore, when choosing Defined Benefit Plan to
put you superannuation contributions, it is very vital to inspect or to check what cover is offered

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and its costs. However, the employees must be aware that low-fee funds might not provide
insurance cover (Inderst 2009). And this is a critical aspect that must be considered while
selecting the super fund or shifting between funds.
vii. Financial Strength
Employees should check the financial strength or capability of the defined benefit plan.
One of the primary indicators of the super fund financial strength is the rating accorded it by the
credit rating agencies. Despite the fact that all super funds are needed or required by the financial
regulator and the watchdog to possess a level financial strength, the fact remains that the stronger
the super fund provider's financial position, the better it is (Peirson et al. 2014).
Superfund is often coupled with various risks like any other financial institutions, and the
risks may be categorized as; interest rate risks, market risks, the investments risks, liquidity risks,
legislative risks timing risks et cetera. Therefore, because the number of risks or perils involved
while selecting a super fund may be countless, it very essential for employees to consider doing
prior research to ascertain features and the benefits associated with a particular super fund
(Brigham and Houston 2012). The employees must ensure they achieve the most appropriate and
beneficial super fund, with better returns to rest assured of the future even after the retirements.
Issues important in the decision-making process
Money is characterized by what we the time value. For example, a dollar today is more
valuable than a year ago. Therefore, it is on this idea the time value of money is grounded. Most
financial decisions like the buying of the long-term assets or investment of the superannuation
contributions may probably impact on both the employees and firms cash flows at different times
(Moyer et al. 2011). Similarly, if an employee borrows funds from the bank or the company's

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treasure, he or she gets the cash and get it to work to pay interests and repay the whole sum in the
future. For the companies, the shares can be sold out, and the firm’s funds will rise at the time
the shares will be issued, however as they pay dividends in the future, the outflow of cash will
happen (Brigham et al. 2016). Informed decisions require that the cash inflows and outflows
which the firm is expected to give up over some period should be precisely and logically
comparable. Cash flows, therefore, are considered to be logically comparable if they are
correctly utilized in timing and risks. Consequently, we say that time value of money is an
integral part of the concept of finance. It presents the different amount of money at different
points in time. The cost of funds is very dependent upon the time since it can be put to
productive use. Therefore, the following are the very significant matters relating to the time
value of money that helps in decision-making processes as per in the case discussed above.
Opportunity Cost
When you settle on a choice to buy an item or service, contract a worker, or put resources
into an advantage for the organization, you commonly think about your needs. You and your
organization have certain necessities that are more basic than others. On the off chance that you
have a constrained measure of capital, you can't get all that you require in the meantime. You
must forgo something to get the others (Michalski 2013). What you do without is known as the
opportunity cost. When you consolidate these shifted contemplations in a business trade,
opportunity cost mirrors the accurate estimation of cash as a trade medium. Therefore, if it is a
priority for a tertiary sector employee save his or her superannuation in the defined befit plan
without affecting other necessary needs, then he or she can go ahead to do so, but if it is not a
priority in the scale of the needs then, the vice versa is also true.

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Probability and the Returns
Probability and the outcomes you also expect a factor into the precise estimation of cash
in your decision making. If you consider obtaining a utilized bit of hardware for $2,000, or
similar equipment, yet new, for $3,500, you don't exclusively think about the distinction in cost.
You should survey to what extent the utilized apparatus will last before breaking down and the
amount it will cost to repair (Chandra 2011). If the probability that the user equipment will break
down like clockwork is 50 percent, and it costs $500 to fix, you will probably select to buy the
new hardware, in light of the relative genuine price. And so make the investments made in the
super funds. If there is a probability that the defined benefit plan will take money out of you
without any relative gains or interest then, the employee may opt for another valuable super
fund.
Future Uncertainty
The future holds no assurances. When taking a look at the rate of profit after some time
for super fund investment alternatives, a more moderate employee would factor in the level of
return assurance. A less-risky venture may create a more simple return, yet it has an abnormal
state of certainty. More risky ventures regularly guarantee more prominent reward over the long
haul (Chandra 2011). However, the vulnerability in societal, financial and market patterns add to
the potential that the profits may not emerge naturally. So a tertiary sector employer should
consider investing his superannuation contributions in the super fund that is likely to yield a
desirable return in the future.
Time Value Basics

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From a financial point of view, the time estimation of cash alludes to a correlation of how
much value an amount of money has presently versus its comparable incentive later on. A
business choice that results in $20,000 in income in one year is possibly more favorable than one
that leads to $21,000 in revenue in five years, for example. While $21,000 is more prominent,
you could without much of a stretch end up with more cash by making $20,000 and investing it
further it to multiply over the five years (Michalski 2009). You would need a 1 percent or higher
annualized return to profit. And so make the investments regarding superannuation contributions.
Paying Bills or the Level of Debt
Another essential factor in evaluating time estimation of cash is the level of debt you
have. If you have outstanding, massive deficits, it is more favorable to get cash in your hand fast.
If you make payments on a 12 percent loan, creating income rapidly can enable you to speed up
payments on your debts. This reality warrants substantial thought of investment with quick
returns (Higgins 2012). On the off chance that you foresee a 5 percent annualized return on an
elective super fund when measuring a long-term alternative, it is sensible enough to take the
prior income and pay off the debts.
Conclusion
The cognitive processes used in decision making usually deal with the available
information to overcome the overload of information which may have some implications on the
corporate financial management systems. In the two discussions above different factors that help
the tertiary sector employees in investing their superannuation funds have been examined.
Therefore, it is wise for an employee to consider utilizing only the elements which will be of
more benefit than losses.

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