Category: Future Proof
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Sub category: Superannuation
6 July 2015

Choosing investments for your super fund

The investment options you choose for your super could have a big impact on your retirement savings.

Super is one of our most valuable assets. Yet, according to research by Super Ratings (April 2015), around 60% of Australians have their super in a default option where the underlying investments may not be in line with personal goals.

Taking the time to look at how your super is invested now, could pay off in retirement. Here are some of the main considerations to take into account before you choose your investments:

1. Your life stage

When we’re in the workforce, saving for retirement is a long term goal. So, in our younger years, it may make sense to focus on typically high growth investments, like shares, which have a track record for healthy long term returns.

As you move closer to retirement your super becomes more of a medium term asset, and it may be appropriate to shift to a more balanced investment option. Your super savings will still have exposure to share market gains, however you may prefer to invest in lower risk assets like fixed interest or cash.

When you’re approaching, or in, retirement, preservation of capital becomes increasingly important. At this stage you might be considering switching at least part of your nest egg to ‘defensive’, or conservative investments. This could give your super a greater stake in less volatile cash-based investments that provide a steady income stream. With hopefully a long retirement ahead, it could still make sense to have some exposure to growth investments.

2. How you feel about risk

High returns come with higher risk, and finding the right balance between risk and returns can be something of a juggling act. Shares for example, have historically delivered healthy long term gains. Bear in mind however, share markets can fluctuate significantly over short periods.

On the other hand, conservative investments like cash are low-risk, but the long term returns tend to be at the lower end of the scale.  The key is to determining the blend of investments that works for you.

Finding your risk profile could be a way to understand what your level of appetite for risk is. This is where you weigh up your retirement goals with the type of investment you may need to meet that goal. You should also factor in the level of risk you can afford and the level of risk you’re comfortable with. Speaking to a financial planner could help you work out your risk profile, and referring to the Product Disclosure Statement of your super fund can provide you with further information on the types of investments options available and the level of risk involved with each option.

3. The level of diversification within your super fund

Spreading your super across a wide range of investments could help you reduce risk across your portfolio while still enabling you to enjoy strong long term returns. Focusing on one or just a few asset classes leaves your nest egg vulnerable to market downturns. That’s why it’s worth giving your super exposure to a broad mix of asset classes.

Selecting your super investment strategy calls for some careful thinking. Speaking with your financial adviser is a good starting point to work out the mix of investments that’s right for you.

Research taken from SuperRatings Media release: Super funds heading for double digit returns, 19 April 2015

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