Your investment horizon
The length of time before you plan to use your super, plays a large role in determining how you invest. The longer you have, the more aggressively you can invest, since falls in the market in the short term are less important than maximising your returns over the long term. If you are eligible, and need to access some of your super in the short term, you may want to choose more conservative investments for a portion of your super to protect yourself from the risk of negative short-term returns.
When it comes to investing, diversification is critical. It’s why we invest across both listed and unlisted assets. Take a short masterclass on asset class on the Dream Project.
Your investment earningsNow, let’s move on to your investment earnings. Your returns will shape your retirement lifestyle. Historically, shares and property type assets have provided higher returns over the long term than cash and fixed interest type assets. If your goals are within reach, it may not be necessary to take on higher risk.
Risk toleranceRisk tolerance is an investor’s willingness to accept high risk in the hope an investment will increase in value. A risk-averse investor has investments whose values are relatively stable—they will neither increase greatly nor decrease greatly. An investor with a high risk tolerance has investments whose value might increase dramatically or fall dramatically. An individual’s risk tolerance varies by personality and other factors, such as life stage. For example, a retired person is typically less willing to pursue high-risk investments than a younger person. In the mean time you can get a good idea of your risk tolerance by completing the Investor needs profile.
There are four broad profiles. Over your lifetime, you'll probably try out each of them.
- Growth – designed for members who want to generate wealth over the long term, but with less risk than an option invested solely in shares.
- Balanced – designed for members who want to generate wealth over the long term, while being sensitive to the relative performance of other large Australian superannuation funds.
- Retirement – designed for members who are close to, or have reached retirement. It is structured to generate wealth over the medium to long term, while providing some reduction to the fluctuation of returns in the short-term.
- Conservative – designed for members who seek less volatile returns for their super while maintaining some growth exposure. Using your money in the short term is likely to be your main purpose.
Making the right choices
Getting your investments right isn't an exact science. But there are a few things you can do to help things along the way.
- Set your goals - short, medium and long-term
- Know the risks
- Understand asset classes
- Consider the expected returns
- Make sure you diversify.
How to choose your super investments
Life can be expensive, so getting your money to work a little bit harder for you can’t be a bad thing, right?
Just like you can choose to invest your money in things like shares, property or cash, you can also choose how you invest your super.
Watch this video to learn more.