Factsheet: Choosing a super strategy

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Super Factsheet #3 

Are you a risk taker or do you prefer to take a safer path? Maybe you're somewhere in the middle?

How you feel about taking risks can affect the investment strategy you choose for your super, and how much money you end up with. Remember that super is a long-term investment for your retirement, so choosing the right strategy for your super money is important.

Nat gets a full-time job as an apprentice chef.

When you're young, it might suit you to choose a 'growth' or a 'balanced' strategy as you have time to recover from any negative returns. Consider contributing some of your own money into super, as you may get a co-contribution from the government, if you earn under a certain amount.

Nat's restaurant business is booming. He's earning great money. But he's starting to slow down and plans to retire soon.

Consider making extra contributions to super to boost your balance before retirement. Review your investment strategy to ensure it's appropriate for your needs. Consider getting personal financial advice from a licensed financial planner about the best option for you.

If you don't choose an investment strategy, your super fund will decide for you, sometimes called the 'default option'.

Your investment strategy

Most super funds let you choose between different investment strategies or options. An investment strategy or option is how your super money will be invested by the fund. Your fund's product disclosure statement (PDS) explains how each strategy or option works. This includes:

  • how much money the fund expects to earn over time
  • the risk involved - that is, the chance that the value of the investments underlying the strategy will go down and you might lose some of your money.

What investment strategies mean

Investment strategies/options are commonly grouped under four broad headings: 'growth', 'balanced', 'capital stable' or 'capital guaranteed'. Here's a rough guide to these rather loose labels. Look out for how much is invested in shares or property compared with cash and fixed interest. Different investment strategies/options manage risks and maximise returns by spreading your super money across different types of investments. This is called diversification.

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Label What it roughly means

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Invests 70-80% of your super in shares or property. Aims for higher returns over the long term and so risks higher losses in bad years.

Historically, these higher-risk investments have earned the highest returns over the long term.

Balanced Invests 60-70% of your super in shares or property with the rest in fixed interest or cash-based investments. Aims for reasonable returns, but less than growth funds to reduce risk of losses in bad years.

Lower risks

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Capital stable

Invests 60-70% of your super in fixed interest or cash-based investments with the rest in shares or property. Aims to reduce risk of loss and therefore accepts a lower return over the long term.

Your capital and earnings can still be reduced by losses on investments.

Historically, the more the fund invests in fixed interest and cash, the lower the returns.


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Capital guaranteed

By law, invests 100% of your super with an Australian deposit-taking institution, or in a 'capital guaranteed' life insurance policy. Guarantees your capital and accumulated earnings cannot be reduced by losses on investments.

Historically, this strategy has earned the lowest returns, only slightly better than inflation.

Investment types (or 'asset classes')

Your super fund uses professional managers who decide what investments to invest your super money in, in accordance with your investment strategy or option.

Some investments are riskier than others. Higher risk investments, such as shares or property, have the potential for higher returns over the long term, but also a greater risk of falling in value, resulting in a loss known as a negative return. Investments with a lower risk, such as cash and fixed interest, are safer, with less risk of losing money, although they offer lower returns.

The following table shows the four main types of investments that your super fund's professional managers may invest your money in. The mix of different types of investments depends on your super investment decisions (i.e. your investment strategy or option).

Investment type



Shares: Australian and international

As a shareholder you are entitled to share in the company's profits or earnings. These are called dividends and are paid from a company's net earnings. Dividends are usually described as a number of cents per share.

Money is made if the price of the shares has gone up when the shares are sold. This is called a capital gain.

There is no requirement for companies to pay dividends from earnings - some companies might choose to reinvest earnings back into the business.

Money is lost if the price of the shares has gone down when the shares are sold. This is called a capital loss.

Property: residential or commercial

Usually this is a long-term investment, because you hope that the value of the property will increase over time.

There is a risk that the value of the property will decrease, which means you make a capital loss.

Fixed interest investments

These investments offer a set rate of return over time for a fixed period. For example, you might invest $5,000 for 2 years at 6% return. After 2 years, you will get your $5,000 back with interest earned.

These investments are generally low-risk, although it depends on where your money is invested. (For example, investing in high-yielding company debentures is vastly different from having a term deposit with a bank or a managed fund.)

Cash-based investments

These investments usually offer a set rate of return and you will get your capital back.

These investments are low-risk. They include term deposits with banks or credit unions, cash management trusts and government bonds.

What you might choose

From your first job till you retire could easily be 30-40 years, with perhaps another 20-30 years after you retire. Over that time your living standards are likely to rise. Your investment strategy is an important factor in how much money you end up with in your super.

For this reason, super's a long-term investment that usually suits a 'growth' or 'balanced' strategy, investing in shares and property.

The trade-off for growth is losses in bad years. Over 30-40 years, it's likely that any growth strategy will lose money once in at least 4-6 years. That will hurt, and when you get more than one bad year in a row you may think you chose the wrong strategy. Historically, over any 20-year period, a 'growth' or 'balanced' strategy has been the only way to keep up with rising living standards. You must decide if the likely rewards are worth the risk.

A lower-risk, lower-return strategy ('capital guaranteed' or 'capital stable') could suit people who need greater security and less risk; for example, if you're withdrawing all your super in less than 5 years' time and you want to be sure about how much money you'll have.

Here's an example that shows how small differences in returns over a long time really add up.

Rate of return for 20 years,
reinvesting all returns
Start with Finish with
4% per year $10,000 $22,000
6% per year $10,000 $32,000

(These calculations were performed on our Compound interest calculator. They assume all returns are reinvested annually).

Terry's story

Terry is 18 and has just started working full-time for the local council after leaving school. Terry chose the 'capital stable' investment option for his super because he was worried about the risk that comes with a 'growth' strategy.

In the long term, Terry's super fund expects 6% returns from capital stable investments and 9% returns from growth investments.

Terry thinks that he may have been too cautious in choosing a capital stable strategy. So he used MoneySmart's Super calculator to see what that 3% difference (from 6% to 9%) will mean over the course of his working life.

You can see Terry's calculations in the table. What would you do?


What Terry gets with a capital stable strategy
(6% return each year)

What Terry gets with a growth strategy
(9% return each year)

Difference in Terry's super
when he retires

After 47 years




(These calculations were performed on the MoneySmart Super calculator. This comparison assumes that Terry's salary is $35,000 per annum and doesn't change. Calculations are based the Super calculator default options of 0.55% management cost, $52 annual management fee and $78 annual insurance cost. Figures are rounded to the nearest thousand dollars.)


Diversification means spreading your investments so you don't have all your eggs in the one basket. The aim of diversification is to reduce the risk of losing money, so that if one investment produces poor results or is completely wiped out, you still have other investments that may offset the loss or at least save you from losing everything. Super funds diversify by spreading the pooled funds they manage across and between different types of investments.

Can you change your investment strategy?

Most funds let you change your investment strategy. Some funds recommend choosing a higher growth strategy when you are younger. You might feel more comfortable taking higher risks for higher returns while you have time on your side to recover from occasional negative years.

As you get closer to retirement, consider making extra contributions to super to boost your balance. You might decide to change to an investment strategy with less risk. At this time in your life, you might feel more comfortable knowing you are less likely to lose any of your super money before you retire. It all depends on your personal circumstances and how much risk you are personally comfortable with. Consider getting personal financial advice from a licensed financial planner about the best option for you.


  • Most super funds let you choose between different investment strategies/options.
  • Depending on the strategy, your super will be put into certain types of investments.
  • Different strategies involve different levels of risk and return.
  • The strategy you choose affects how your super grows.

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Last updated: 03 Dec 2014