Super is your money – whether you’re just starting out or nearing retirement, it’s important to take an interest and make your super investment work for you.

Super is a long-term investment designed to help you save for retirement.

When investing in super, your savings attract a number of tax advantages; however you can’t access your money until you reach your preservation age or meet one of a number of other strict conditions.

Investing in super can enable you to build a portfolio of investments specifically suited to your personal goals.

Which investment option is right for you?

Investment options in super allow you to have a plan aligned with your particular retirement needs and goals. This needs to take into account:

  • The stage of life you’re in – are you single? Have a partner? Married with children? Approaching retirement?
  • Your investment time frame – how much time do you have before retirement?
  • The level of investment risk you’re comfortable with – low, medium, or high?
Types of investment options
  • A low-risk conservative investment option generally means a lower return and includes cash and fixed interest assets
  • Balanced growth portfolios generally include a diversified mix of investments such as property and blue chip shares
  • An aggressive growth investment option is higher risk but generally offers a higher return over the long term. This typically includes a blend of property and shares and aims for capital appreciation of assets rather than income or safety of investments. Investors with more time in the market can take advantage of this option

Asset allocation

When you’re young, retirement can seem like a long way off. Even so, the actions you take today can have a big impact on the lifestyle you can potentially achieve in retirement.

One of the easiest ways to make sure your super savings are working as hard as they can is to review the underlying investments and asset allocation within your fund.

Your super can be invested in all sorts of assets, including:

  • Cash – ordinary savings account
  • Fixed interest securities – term deposits, government bonds, debentures
  • Australian and international shares
  • Property (direct and indirect)
  • Infrastructure assets

Depending on the type of super fund you’re in, you may be able to choose which assets or asset allocation (mix of assets) your super is invested in.

Super funds typically report on their average returns on asset classes over 5 or more years, but be aware that past performance is not an indicator of future performance.

Remember: investment strategies are not one size fits all. The best way to choose the most appropriate mix of investment products is to speak with a professional financial adviser, who will consider your stage of life, investment time frame, and comfort level of risk.

Types of investment options

Some people think of their super as a single asset but it can potentially be made up of many different assets. Most super funds offer investment choices to their members.

Investment choice is selecting your investment assets, such as Australian shares, international shares, fixed interest, cash, or property.

Asset classes like cash and fixed interest are sometimes described as ‘conservative’ investments. They carry less risk in terms of volatility of returns and potential for capital loss, but they also offer less potential for high returns. These investments are generally described as low risk/low return.

Shares and property are generally described as ‘growth’ investments since they offer investors the potential for higher returns. But with this comes a higher risk. Returns could be volatile over the short term.

How investment options vary

Investment options vary from fund to fund.

Some super funds define their investment options in terms of their risk characteristics, such as growth or aggressive strategies through to conservative or stable strategies.

Other funds offer more specialist options, such as strategies that adopt a ‘socially responsible investment’ approach. Some funds let members have greater control over selecting the underlying investments, such as choosing mostly shares.

Other funds allow you to blend options using different investment techniques, such as utilising alternative investments.

You don’t have to make an investment choice. But if you choose not to, your money will be invested in the fund’s default investment option. This investment option may not necessarily be the most appropriate for you.

Making an investment

The investment you choose will be influenced by your personal views on ‘risk and return’. You might be quite prepared to risk short-term losses for potentially larger long-term returns. Or you might be quite comfortable with less movement in the value of your investment. Your tolerance to investment risk is known as your ‘risk profile’. There are a variety of online risk profiling tools that you may like to explore.

Your super fund’s investment choice guide or product disclosure statement will outline its investment approaches, the strategy behind each, the return it aims for, and the risks involved.

Taking the time to explore your investment options and making an informed choice could result in a significant boost to your final super balance.

Trade-off between risk and return

The challenge with investing is that usually the higher the returns you aim for, the greater the risk. There are some ways to manage the trade-off between risk and return which may be worth considering.

Invest to suit your timeframes

It’s important to link your investment style with your timeframe – or the amount of time you expect to have your money invested.

If you don’t need your super in the short term, you have more time to ride out the highs and lows of investing to potentially gain long-term growth.

The shorter your timeframe for investment, the less likely you will be aggressive in your investment style. Investors with a limited timeframe usually don’t want to risk short-term fluctuations in returns, and choose a more conservative approach with the aim of protecting their super.

It’s important to remember that different timeframes will likely exist for different financial goals that need to be met by the one investment.

For example, a recent retiree will have different timeframes for different stages of retirement, and their investment may be split to cater to these different financial needs. Money needed to live off in the short term may be invested more conservatively than money that’s needed to fund the later years of retirement, which could be 20 or 30 years away.

Each asset class has varying timeframes for investment, based upon its level of risk or potential fluctuation in returns. For example, more conservative assets such as cash or fixed interest may not offer you high returns in the short term. However, they are considered more stable than other asset classes such as shares, and therefore may suit investors with a shorter timeframe.

Diversify investments to minimise risk

An option for potentially managing risk is diversification – spreading your investments across a range of different asset classes or types of investments.

This can offset poor performance that may occur in any single asset class. For example, one asset class may be experiencing better returns, which can offset the poor performance of another asset class.

You’ve heard the saying, ‘don’t put all your eggs in one basket’.

Apply this concept to investing and it could help reduce the impact of negative returns on your investment over the long term.

Understanding the relationship between risk and return is essential in determining your personal investment style and making smart investment decisions.

Case study: Mary

Mary is 50 and currently employed on a salary of $70,000. She has accumulated $200,000 in her super account and is planning to retire at 65. Mary’s employer is contributing the Superannuation Guarantee (SG) contribution and she’s also salary sacrificing $10,000 a year to her super.

Mary’s super investments are currently based on a balanced portfolio, and she’s concerned she won’t have sufficient funds at retirement. As she can’t afford additional personal contributions, she’s considering whether she should change her investment risk profile to a higher-growth profile, and is wondering what difference this would make to her retirement benefit in 15 years’ time.

The table illustrates the possible increase in Mary’s super if she was to change her investment to a higher growth investment profile. You can see that even just a 0.95% difference in investment returns can make a substantial difference (almost $70,000 over 15 years).

YearBalanced investorHigh growth investor
10$429,599$464,700
15$572,330$640,688

Year

The assumptions used for the projections are:

  • Mary is 50
  • Her annual salary is $70,000
  • She qualifies as a high growth risk profile investor
  • Projection term 15 years (to age 65)
  • SG contributions are 9.5% of salary
  • Salary sacrifice contributions are $10,000
  • Current superannuation balance is $200,000
  • Balanced returns 7.30%
  • High growth returns 8.25%

If you have an accumulation account, you can use a super calculator to estimate your super balance at retirement. See the long-term effects of:

  • The most common fees charged by various funds
  • Making extra contributions
  • Taking advantage of super co-contributions, if you’re eligible
  • Ceasing or reducing contributions as a result of time out of the workforce
  • Switching your investment strategy or changing funds

If you have a defined benefit account, you can call Qantas Super to help calculate your benefit at retirement.

Other info you might be interested in

What's salary sacrificing?

Salary sacrificing is when an employee agrees to give up part of their salary or wages in return for benefits of a similar value.

Understanding risk and diversification

Investment risk is the chance that the value of an investment will drop. All investments have risks.

The role of financial planning

Investment risk is the chance that the value of an investment will drop. All investments have risks.

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