Aside from buying property, superannuation will be the biggest investment many Australians make in their lifetimes. That’s why some find the ups and downs of financial markets so concerning. But super is a long-term investment, and if you have the right investment mix in place, you shouldn’t need to worry about short-term market movements.
We’re all different; we have different numbers of years left until we retire and different goals for how much super we’ll need and what we’ll do with it once we retire. But no matter who you are or where you are in life, understanding a few basic investment principles can help ensure your super is working harder for you.
Understand Risk and Return
In investment markets, there is a direct correlation between risk and return. Generally, the higher the risk, the larger the potential returns. Knowing how much risk you’re comfortable taking on is a critical factor in selecting the right portfolio for you.
We all love the idea of high returns, but if you’re someone who feels uncomfortable taking risks and will worry about every movement in the markets, then a riskier portfolio probably isn’t worth the stress. If you have a lower risk tolerance, you may feel more comfortable going with a conservative option. Conservative investors accept lower long-term returns in exchange for greater stability in their portfolios.
Your age and how long you plan to continue working will also help you choose your investment strategy. Unless you are close to retirement (you’re planning to retire in the next five years or less), your superannuation is considered a long-term investment.
As a general rule, the more time you have before you plan to access your super, the more risk you can take. Markets naturally move up and down over time, so if you plan to invest for the longer term, short-term volatility is okay. If you do experience a loss, there should be time for your portfolio to recover.
Many people just stay in the default investment portfolio their super fund places them in. While this is usually a good general option, it’s important to understand your alternatives so you know what is most appropriate for your circumstances.
The right portfolio for you will depend on the investment outcome required. When choosing a portfolio you have two main options:
Ready-made: these portfolios are designed across a variety of asset classes to meet a range of risk and return outcomes. They are dynamically managed by a team of experts who design, construct and manage the portfolio to target the required rate of return with an acceptable level of risk.
Custom Built: if you would like to take greater control, you have the flexibility to customise your own portfolio. By mixing a range of asset classes, you can design a portfolio to your exact specifications, and take advantage of our expertise in fund manager research and selection.
If you decide to change how your super is invested, you can call us on 1300 861 143.