====== Superannuation ======
Superannuation (often called 'super') is a government-mandated retirement savings system, most famously associated with Australia. Think of it as a long-term investment plan designed to build your personal retirement nest egg. The core idea is brilliantly simple: throughout your working life, a portion of your income, primarily contributed by your employer, is funnelled into a special investment fund. This money is then invested on your behalf in a mix of [[assets]] like [[equities]], property, and [[fixed income]]. The goal is to grow this pot of money over several decades through the power of [[compounding]], so that by the time you retire, you have a substantial sum to live on. While the term 'superannuation' is specific to Australia, the concept is universal, with close cousins like the [[401(k)]] in the United States and workplace [[pension]] schemes in the United Kingdom. It’s a foundational pillar of personal finance and a powerful, if often overlooked, tool for long-term wealth creation.
===== How Superannuation Works =====
At its heart, super is a structured way to force you to do what every savvy investor should be doing anyway: //saving and investing for the long term//.
==== The Basics: Compulsory and Voluntary Contributions ====
The system's engine is the [[Superannuation Guarantee (SG)]]. This is a law that requires employers to contribute a minimum percentage of an employee’s salary into their nominated [[super fund]]. This percentage is set by the government and changes over time, but the effect is a steady, automatic investment into your future without you lifting a finger.
Beyond these compulsory contributions, you have the power to boost your savings further:
  * **Concessional (Before-Tax) Contributions:** These are [[concessional contributions]] made from your pre-tax salary, often through a 'salary sacrifice' arrangement. They are taxed at a low flat rate within the super fund (typically 15% in Australia), which is usually much lower than your marginal income tax rate, making it a highly tax-efficient way to save.
  * **Non-Concessional (After-Tax) Contributions:** These are [[non-concessional contributions]] you make from your take-home pay. While you don't get a tax deduction for putting the money in, the investment earnings within the super fund still benefit from the low-tax environment.
==== Where Does the Money Go? ====
Your super money doesn't just sit in a bank account. It's actively managed and invested by your chosen super fund. Most funds offer a range of investment options, allowing you to tailor your strategy to your risk tolerance and age.
  - **Default (MySuper) Options:** Often a 'balanced' or 'growth' portfolio, designed to be a one-size-fits-most solution for members who don't make an active choice.
  - **Custom Options:** You can typically choose from options like:
    * **High Growth:** Heavily weighted towards domestic and international shares. Higher potential returns, but also higher volatility.
    * **Balanced:** A mix of growth assets (shares, property) and defensive assets (cash, bonds).
    * **Conservative:** Primarily focused on cash and fixed income to preserve capital.
    * **Ethical/Sustainable:** Invests according to specific environmental, social, and governance (ESG) criteria.
For an investor with a [[value investing]] mindset, this is where you can apply your principles. You can actively choose an investment option that aligns with a long-term, value-oriented strategy, or select a fund whose overall philosophy is to find high-quality, undervalued assets.
===== Superannuation from a Value Investor's Perspective =====
[[Warren Buffett]] famously said his favorite holding period is "forever." Superannuation is one of the few vehicles that forces you into this long-term mindset.
==== The Ultimate Long-Term Compounding Machine ====
Superannuation is a masterclass in patient compounding. The combination of regular, forced contributions and a multi-decade investment horizon is the perfect recipe for exponential growth. The tax advantages act as a powerful accelerant. Because investment earnings are taxed at a lower rate inside super, more of your money stays invested and working for you, year after year. This tax-sheltered environment significantly amplifies the compounding effect compared to investing in a personal capacity.
==== Choosing Your Super Fund Wisely ====
Just as a value investor scrutinises a company before buying its stock, you must scrutinise your super fund. Don't just settle for the default fund your employer signs you up for. Treat it as one of the most important investment decisions you'll ever make.
Look for these key attributes:
  * **Low Fees:** High fees are the silent killer of returns. A 1% difference in fees can reduce your final balance by tens or even hundreds of thousands of dollars over a lifetime. Scrutinise the [[management expense ratio (MER)]] and any other administrative or performance fees.
  * **Investment Philosophy:** Does the fund have a clear, disciplined, and transparent investment strategy? Or does it seem to chase fads? Look for a fund that prioritises long-term performance over short-term noise.
  * **Long-Term Performance:** Ignore last year's returns. Look at performance over 5, 10, and 20-year periods. Consistency is more important than a single spectacular year.
  * **Transparency:** A good fund is open about where your money is invested and what it costs you. If you can't easily find a list of their top holdings or a clear fee schedule, that's a red flag.
===== Global Parallels =====
While the 'super' brand is Australian, the concept is global. Understanding its counterparts can provide valuable context.
  - **United States:** The closest equivalents are the **401(k)** and the **[[IRA (Individual Retirement Account)]]**. A 401(k) is an employer-sponsored plan where employees can contribute a portion of their pre-tax salary, often with an employer 'match'. An IRA is a personal account that offers similar tax advantages.
  - **United Kingdom:** The UK has **[[workplace pensions]]**, where both the employee and employer contribute, and the government often adds a top-up via tax relief. For those wanting more control, a **[[SIPP (Self-Invested Personal Pension)]]** allows individuals to choose their own investments, much like a self-managed super fund.