Superannuation Asset Allocation Rebalancing

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  avoidfullprice on 30/06/2021 - 17:38

  Likely you rebalance yourself.

  The super I've been with asks the % allocation for each pay (some for aust shares and some for intl shares). It also asks of I want to rebalance on existing balance.

  There are indirect costs involved with rebalancing, as they need to do buy/sell of units.

  We don't rebalance % allocation within the investment thou. They do that

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  tsunamisurfer on 30/06/2021 - 17:39

  This is something you have to ask your particular fund.

  I know they will rebalance for their own models, but for one's own where someone has said 34% Cash 33% Aus Securities and 33% International securities, I am not sure what happens when say the international shares tank.

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  huybo on 30/06/2021 - 17:52

  Depending on the fund, it would be the later, you pick the asset allocation, you would need to rebalance this in future.
  Some funds now a days do have a little check box that will rebalance once a financial year or even half year. check your fund.

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  brad1-8tsi on 30/06/2021 - 18:03

  I'm with AWARE Super and as far as I can tell they rebalance as they go within a certain percentage range.

  eg: My asset allocation for the past 4 years has been:
  20% growth
  20% diversified socially responsible
  25% Au Equities
  35% Int'l equities.

  As of today the allocation sits at
  19% growth
  18% diversified socially responsible
  25% Au Equities
  38% Int'l equities.

  Somewhere in the process, rebalancing has occured as I know they haven't all increased / decreased equally in the past 4 years.

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  knasty on 30/06/2021 - 18:30

  Check the super fund's investment guide. Typically Balanced fund is the default and investment proportions within this Balanced fund will be managed by the super fund manager/administrator within certain % limits. But if you choose your own funds (ie aussie equities, bonds, infrastructure etc) those investment proportions should remain static for future investments. The overall allocation of your current balance will differ from your chosen proportions for future investments as the returns in each investment option will have differed over time.

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  bobbified on 30/06/2021 - 20:35

  The funds tend to only rebalance individual member account holdings if it's the default investment that you didn't specifically select when you joined. And that's usually if that default is age-based. If you've made an investment selection, it's usually up to you to initiate a rebalance.

  The only way to find out for sure is to read the PDS and Investment Guide because each product has different features.

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  Seraphin7 on 30/06/2021 - 21:31

  It depends.

  Are you invested in a single investment option with a diversified mix of assets? The underlying assets are rebalanced "under the covers" every day and you don't see anything going on.

  Are you invested in a number of investment options based on a pre-defined investment mix that was applied at entry? You'll need to check with your fund, but it is likely (but not certain) you will need to do any rebalancing yourself.

  • 

    brainactive on 30/06/2021 - 21:44

    I confirmed with my super fund that I have to manually rebalance to maintain allocations. What is the best practice when it comes to rebalancing? Is there as an optimal way to determine how much to increase/decrease the under/overweight asset? Is there a tool somewhere?

    • 

      Seraphin7 on 01/07/2021 - 10:59

      There's a variety of ways to do it.

      The website will likely have a "re-balance button" that you can activate whenever you like. This will cause buy and sell transactions to occur that snaps your allocation back to whatever your settings are. You'll just need to confirm exactly what it would be snapping back to. If you want to stay true to your allocation, you would do this either quarterly or annually.

      It may also have auto-rebalance functionality that you may be able to simply set to do the above on a periodic basis.

      The other way you can approach it is to alter the investment mix on future contributions to edge closer to your target each time you have money coming in. This is obviously going to be a slower burn as each contribution is likely to be very small in the context of your overall balance.

      The advantage of the final case is that it doesn't incur the costs of buying and selling that may be triggered by rebalancing and it avoids being in a situation where you're "fighting the market" as you rebalance down an over-performing asset, only for the market to turn and it becomes an under-performing asset and vice versa.

      • 

        brainactive on 01/07/2021 - 12:55

        There is no auto-rebalance functionality, so I'd have to alter the investment mix on future contributions.

        Is there an optimal way to determine the future investment mix to maintain the proprotion

        • 

          Seraphin7 on 01/07/2021 - 14:01

          @brainactive: There is no real "optimal way" … at least without building out complex spreadsheets and calculations.

          But in a simplified model, you have two investments that you want to be 50/50, but market movements have pushed them to 60/40.

          You could have future contributions coming in at (say) 40/60 or 30/70 or what have you. The larger your balance is compared to your contributions would drive this proportion to be more aggressive (as each contribution, or even a year's worth of contributions won't make an enormous difference). This will slowly tilt your balance back to your desired mix.

          • 

            brainactive on 01/07/2021 - 14:13

            @Seraphin7: Yeah I'm trying to figure out how to determine whether to go with 40/60 or 30/70 without going by gut feel.

            I did some research and found this: https://www.passiveinvestingaustralia.com/portfolio-maintena…

            Separate question: Does buying/selling within super result in tax implications?

            • 

              Seraphin7 on 01/07/2021 - 15:45

              @brainactive:

              Separate question: Does buying/selling within super result in tax implications?

              The short answer is yes.

              The long answer is it depends what you mean, and to a certain extent the fund/product you are invested in.

              A superannuation fund (at least with respect to accounts in the accumulation phase) must pay capital gains tax just like you would as an individual (although separate tax rates apply). Therefore, when gains (or losses) are crystallised they form part of the realised tax position of the fund. The fund pays that tax through deductions to members' accounts.

              With the set up most funds have, this will be effectively invisible to you. There is a very long and complex explanation for this that goes way beyond what I can put here. Some of the more sophisticated "wrap-style" funds can see specific tax entries occurring on your account in direct response to your buy/sell decisions, but these are less common.

              Speak to your fund who should be able to tell you very clearly and crisply what will happen when such transactions are executed (noting they will only be able to advise you in the general sense, not in specific relation to your account).

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  tyarrhea on 02/07/2021 - 20:42

  Not financial advice but use your age as a guide. Most individuals between 20-30 years old would likely target a growth to defensive asset class ratio 80/20. And this will taper down the older you get. Around retirement of 65 years old, a 40/60 split may make more sense.

  Being young means you can ride out the highs and lows of the markets and as you get older and want to preserve capital, you then start reducing the risk.

  If you’re curious in what assets classes to go for, look at what the professionals are doing and search for the Strategic Asset Allocations (SAA). An example via the below.

  https://russellinvestments.com/-/media/files/au/resources/sa…