Super investment options

Striking the right balance

With super, it's easy to set and forget. But choosing a suitable investment option will have a major impact on how your super performs. So see what your fund and others have to offer.

How super funds invest your money

Super funds invest your money to grow your nest egg over your working life. Most super funds let you choose a range of investment options. The difference between investment options is mainly how much investment risk you are willing to take on.

You can find out about the different investment options on your fund's website and by calling their general phone line. For more detailed information, see the fund's product disclosure statement. This explains the:

  • Strategy behind each investment option
  • Investment returns it aims for
  • Risks involved

Your fund may also have a ready-made investment option for people who don't choose, which is sometimes called the 'default investment option'. MySuper will eventually replace existing default accounts offered by super funds.

MySuper

Many super funds offer a new type of account called MySuper. MySuper accounts offer:

  • Single or life stage investment options
  • Lower fees (and restrictions on the type of fees you can be charged)
  • Simple features so you don't pay for services you don't need

See MySuper.

Types of investment options

Growth

Invests around 85% in shares or property. Aims for higher average returns over the long term. This also means higher losses in bad years than those you would experience with lower risk options. You may also be able to invest in a 'high growth' option with 100% in shares and property.

Balanced

Invests around 70% in shares or property, and the rest in fixed interest and cash. Aims for reasonable returns, but less than growth funds to reduce risk of losses in bad years. Those losses usually occur less frequently than in the growth option. You may also be able to invest in a 'moderate' option with around 50% in shares and property.

Conservative

Invests around 30% in shares and property with the majority in fixed interest and cash. Aims to reduce the risk of loss and therefore accepts a lower return over the long term. There is less chance of having a bad year than in the balanced or growth options.

Cash

Invests 100% in deposits with Australian deposit-taking institutions or in a 'capital guaranteed' life insurance policy. This option aims to guarantee your capital and accumulated earnings cannot be reduced by losses on investments.

Super funds vary in the way they use these terms. You should check:

  • How much is invested in shares and property compared with cash and fixed interest for each investment option
  • The type of assets that is included in each of these categories

Refer to the table below to see the typical investment characteristics of different types of investment options within super.

Investment mix Typical characteristics

Growth

darkblue-legend Around 85% in shares and property
lightblue-legend The rest in cash or fixed interest

Growth-piechart

Investment: $10,000 after 5 years = $14,700

Expected return: 8%
(gross returns before fees, taxes and other costs)

Volatility: High volatility-high

Expect a loss: 4-5 years in 20

Balanced

darkblue-legend Around 70% in shares and property
lightblue-legend The rest in cash or fixed interest

Balanced-piechart

Investment: $10,000 after 5 years = $14,400

Expected return: 7.5%
(gross returns before fees, taxes and other costs)

Volatility: Medium volatility-low

Expect a loss: 4 years in 20

Conservative

darkblue-legend Around 30% in shares and property
lightblue-legend The rest in cash or fixed interest

Conservative-piechart

Investment: $10,000 after 5 years = $13,700

Expected return: 6.5%
(gross returns before fees, taxes and other costs)

Volatility: Low volatility-low

Expect a loss: 0 years in 20

Cash

darkblue-legend 100% in deposits with Australian deposit-taking institutions

Cash-piechart

Investment: $10,000 after 5 years = $12,800

Expected return: 5%
(gross returns before fees, taxes and other costs)

Volatility: Very low volatility-low

Expect a loss: 0 years in 20

Picking a suitable investment option

Most people work for 30 to 40 years and live for another 25 to 30 years after retiring. You want your super to grow and to keep pace with inflation during this time.

For this reason, a growth or balanced strategy may suit a long-term investor who won't be spending their super for more than 10 years.

A higher risk strategy may deliver higher returns, but the risk is losses in bad years. Over 30 to 40 years, it's likely that any growth strategy will lose money in at least 4 to 6 of those years. However, there are likely to be more ups than downs.

Historically, over any 20-year period, a growth or balanced strategy has given better returns than more conservative investment options. You must decide if the likely rewards are worth the risk.

Think before you choose

When choosing your investment strategy, consider the following:

  • Your age
  • How comfortable you are with investment risk
  • How long before you are able to access your funds
  • Your retirement goals

If you won't be accessing your super for 5 or more years, your focus should be on what it's likely to be worth in the future. It doesn't matter what it is worth from day to day, in the same way that the value of your home doesn't matter from day to day. It only matters when you sell your house, or, in this case, take out your super.

A lower risk, lower return strategy (e.g. capital guaranteed or capital stable) could suit people who need greater security and less risk. This strategy may suit if you're retiring and intend to withdraw all your super in less than 5 years, and you want to be sure how much money you'll have.

Case study: Adam's super investment strategy

" "Adam, 40, would like to retire when he is 60. To make this happen, he knows he has to build a nest egg. He has some shares and is paying off an investment property with his sister.

Adam wants a super fund that offers relatively high returns over the long term. He is willing to tolerate the risk of negative returns in bad years. He decides on a growth fund as he hopes that over the next 20 years the good years will outweigh the bad.

Picking the right investment option within super is important whether you're 16 or 65. Your investment strategy will influence how much money you'll have to retire on and how you live your life in your retirement years.


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Last updated: 18 Feb 2014

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