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The way your super balance is invested plays a significant role in how quickly it grows. Reviewing how it is invested and making changes can help your super align with your interests.
If you’re thinking about your super for the first time at the end of the financial year, you’re not alone. When it comes to super, most of us are pretty hands off. We’ll check our balance every year or so and maybe make a one-off contribution.
Taking the time to review your options can have a big impact on the kind of life you’ll have in retirement.
While your super balance is just numbers on a screen, it’s important to remember that it reflects the money that you’ll draw on when you reach retirement age. The health of your balance can depend on the types of assets you’re invested in and how much risk you take on.
Recent legislative changes have made it easier to understand the details of investment option and fund performances.
What kind of assets do super funds invest in?
Super funds typically have teams of experts working on investment management. Their goal is creating long-term strategies that meet the investment objectives of the fund. They can be invested in a many different ways, including infrastructure projects such as airports or toll roads, innovative companies with good long-term prospects such as Amazon or Netflix or invest in things that support renewable energy or medical research.
Broadly, things such as shares or property are known as growth assets. These are likely to experience greater fluctuations in value and can experience negative returns when markets become volatile. They also have the potential to generate higher returns over the long-term compared with defensive assets such as cash and bonds.
There are defensive assets, such as term deposits or fixed interest products, including government debt or corporate bonds. These provide more modest returns at lower levels of risk.
Holding different types of assets is known as diversification. Diversifying your investment portfolio means you’re not over-reliant on the performance of a specific asset class to increase your balance. This means you are less likely to lose everything as a result of a property market collapse or a rise in interest rates that devalues bond holdings.
Choose what works for you
Your investment goals will depend on how much risk you’re willing to take on and your time frame. If you’re willing to accept a short-term loss in exchange for higher long-term returns, more aggressive, growth assets may be your preference. If you don’t mind earning less in the long term to prevent a loss, you may be a more defensive investor.
What is a balanced investment strategy?
A balanced investment strategy aims for reasonable growth of your super balance over the medium-to-long term. It has a bit of risk, with investment of about 70% of your balance in growth assets and 30% in defensive.
This is generally a default option for fund members who do not choose any investment options when they join a fund. It’s usually diversified across a broad range of investments such as Australian and international shares, cash, property, infrastructure and bonds.
What is a growth investment strategy?
A growth strategy aims for higher average investment returns over a longer term. It’s invested in a way that is expected to outperform the overall market. This strategy comes with higher risk of taking on greater losses if the market doesn’t perform as well.
Growth investments typically are 80-85% in assets such as shares and property, with the rest invested in defensive assets such as bonds and cash.
What is a conservative investment strategy?
The opposite of a growth strategy is a conservative strategy. This sees about 70% of a super balance in defensive assets. While this strategy reduces the risk of an investment loss, meaning you may be be unlikely to have a bad year, you may need to be willing to accept lower returns.
Is cash investing a good strategy?
Investing in cash means term deposits with Australian banks. A 100% cash investment strategy will mean your capital – or your balance – will not fall, however the buying power of your dollar will decline over time due to inflation. If you have a long time to retirement, a cash investing strategy may not be appropriate.
What is the best investment strategy?
Most people are able to access their super balance when they retire or reach preservation age, which depends on when you were born. It’s generally between 55-60.
How long until you retire, or can access your super balance, should guide your investment approach. For example, if you’re new to the workforce and won’t be accessing your super for at least 10 years, you may want a strategy that aggressively grows your balance because market dips along the way will not matter as much as if you were retiring soon.
The closer you get to your retirement, the more you may think about transitioning your strategy to protect your balance and reduce potential losses.
The bottom line
Every investor’s needs are different – what’s right for you may not be what’s right for anyone else. It’s important to consider your age, life situation, goals, view on risk, and the state of the economy. Regularly reviewing your investments, your strategy, and their performance is a valuable way to ensure you meet your retirement goals.
Doing nothing and sticking with the default option is can also be fine and feasible. Just remember that you have the power to manage your super in a way that aligns with your unique situation.
What you need to know
Any advice on this website is provided by Resolution Life Australasia Limited ABN 84 079 300 379, AFSL No. 233671 (Resolution Life), and is general advice and does not take into account your objectives, financial situation or needs. Before acting on this advice, you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs, as well as the relevant product disclosure statement and/or policy document, available from Resolution Life at resolutionlife.com.au or by calling 133 731, before making a decision on whether to acquire, or continue to hold, the product.
The Target Market Determinations (TMDs) for our financial products (where applicable) can be found at Target Market Determinations (TMDs). The TMDs describe the key features and attributes of an applicable product that affect whether it is likely to be consistent with the objectives, financial situation and needs of consumers in the target market.
Resolution Life is part of the Resolution Life Group and can be contacted via contact us or by calling the phone number mentioned above.
