In July 2021, new rules were introduced by the Federal Government ensuring that every working Australian can choose the super fund they wish their employer to contribute to, hence more power has been given to you to control your future retirement savings.
Choosing a super fund is different to choosing your own investments. Most super funds will offer you what is called a MySuper investment option. The MySuper option is designed and carefully selected by the super fund to suit most members within the fund. If you don’t choose your own investment, the MySuper option is where your super account balance and future contributions will be invested.
What if you wanted to choose another investment type or option within the same super fund? Let’s have a look at that now.
Choosing the right investments to help you reach your goals can be a challenge. Most members leave it up to the super fund to do the heavy lifting and to invest their super contributions into assets that will perform well over time. The objective of super of course is to maximise the lump sum that you can achieve when you stop work and retire. Super funds need to do a careful balancing act between the advantages of achieving strong investment Returns versus the Risk of a potential downturn in global economic and investment markets.
Superannuation is an investment structure with underlying investment asset classes such as Australian Shares, International Shares, Property, Bonds and Cash. These are the most common and usual building blocks that make up an investment option. Fixed interest investments like Bonds and Cash are usually termed as DEFENSIVE investments because they are lower risk and aim to provide income that protects the capital invested whereas Shares & Property are termed as GROWTH investments because they offer a higher return on your investment but carry a higher level of risk.
Defensive investments are typically used to:
Growth investments are typically used to:
Most super funds let you choose from a range of investment options, from Conservative through to a Stable, a Balanced and through to Growth and High Growth investment options. Let’s have a look at these now.
The Investment options you can choose from
Its’ worth taking time to review the investment options available to you through your super, this includes the fund’s MySuper option. The investment return promoted by the super fund is important to consider although it is not proof the fund will continue to perform well based upon their past performance.
Your fund’s MySuper option may not be best for your particular circumstances or your Risk Profile. It’s important to understand that differing investments have various levels of risk. In general, the higher the investment return, the higher the risk and vice versa.
You can check out the options available through your super fund and review the investment returns by accessing their website. You may even wish to compare the performance against other super funds by accessing the YourSuper comparison tool available through the Australian Tax Office (ATO) website, see link below.
https://www.ato.gov.au/YourSuper-Comparison-Tool/
Choosing an investment across a Pre-Mixed selection
Super funds will generally allow you to change your investments at any time. If you choose to do so, please make sure you seek advice and check out the finer details before making a switch in your investment, as there may be a cost involved that may not be entirely clear to you.
GROWTH
These options traditionally invest around 85% in shares, property and infrastructure securities and around 15% in fixed interest and cash. Some may even go as high as 95% to 100% in growth assets and be defined as ‘High Growth’. These options have the potential for strong investment returns over the long term, but they are more likely to experience volatility and even negative returns in shorter time frames.
BALANCED
These options traditionally invest around 70% in shares, property and infrastructure securities and around 30% in fixed interest and cash. They are less likely to experience the volatility associated with Growth options and hence, stable long-term performance is the core objective. A Balanced investment aims to produce reasonable investment returns over the long term hence most super funds will offer a Balanced investment as a ‘default’ and when the member does not make an active choice.
CONSERVATIVE
These options traditionally invest around 30% in shares and property and around 70% in fixed interest and cash. They aim is to decrease volatility and risk and hence over this option will provide lower returns in the longer term.
CASH
This option traditionally invests 100% in deposit taking institutions or in capital guaranteed type policies. They aim to guarantee capital as the primary objective together with any accumulated earnings. The investment return can be expected to be quite low when compared to Growth or Balanced options.
ETHICAL
This option has seen a steady increase over the last 10 years by members who have a genuine concern about investing their super within a set of environmental and social governance standards. The asset allocation across growth and defensive assets will vary between super funds, hence the objective and performance of these options are principal factors to consider when investing and saving for a member’s retirement future.
Considering your appetite for RISK when making an investment choice
When choosing an investment, you should consider the following:
There are many on-line superannuation calculators that can help you determine the future value of your super by inputting a variety of differing investment returns and factors.
The link below gives you access to the ASIC MoneySmart superannuation calculator. This on-line calculator may assist you determine what your super balance might be at a specific retirement age.
https://moneysmart.gov.au/how-super-works/superannuation-calculator
The importance of learning more and seeking advice
There are other important tips and knowledge articles that can help you stay in control of your super investment. Making well-considered decisions and seeking the right financial advice for your circumstances brings you comfort that you’re well on your way to a healthy and wealthier future.
This information provides an overview of the importance of being involved and choosing the right investments for your super. If you would like a PictureWealth adviser to assist you in any way with your super, do not hesitate to reach out to us.
Any general advice contained above does not take account of your personal objectives, financial situation and needs. You should consider the appropriateness of the advice in light of your own objectives, financial situation and needs before acting on the advice. You should also read the relevant Product Disclosure Statement and TMD before acquiring any product.
