Superannuation investment options
Did you know as a super fund member, you can choose how your money is invested?
This choice can affect how your balance grows. If you don’t want to make your own decision, your super fund can make a choice for you (called a ‘default’ or ‘automatic’ investment).
Most super funds offer a range of superannuation investment options that means you can choose to invest your super according to your goals, values and needs. This is where understanding your risk appetite and investment timeframe is important.
The most common investment options include:
- Diversified options – provide members with a mix of investments (known as ‘asset classes’) such as shares, fixed interest, property and cash. These options are usually named ‘Growth’, ‘Balanced’ and ‘Conservative’ and each will have different objectives, asset allocations, risk profiles and recommended investment timeframes.
- Lifestage options – provide members with a more automated approach. The investment strategy selected will be based on your age, and will be adjusted as you get older, usually from a focused growth option to a more conservative option.
- Single-sector options – offer members a more selective approach to investing in specific asset classes like shares or property.
- Sustainable or responsible investing options – these options are managed with an additional screening process around environment, social and governance (ESG) considerations. For example, the investments may exclude exposure to companies such as tobacco and weapon manufacturing.
Deeper dive into superannuation asset classes
The risk level of superannuation investment options depends on which asset classes they hold.
For example, an option that holds mainly shares and property would be high risk in relation to a cash option. But with higher risk often comes greater potential returns – it is a balancing act.
To make things easier for members, super funds give investment options a risk rating (a number between 1 and 7), which is an estimate of how often negative returns may occur over a 20-year period for that option. There are never any guaranteed outcomes as investment markets can be unpredictable. That’s why it’s important to determine where you’re at in your investing journey and what level of risk you’re comfortable with.
Here are the different asset classes you might come across when investing in super:
- Cash (low risk): these investments work much like having a bank account. They include savings accounts, money market funds and treasury bills. Returns are generally stable and predictable.
- Fixed Interest (low-medium risk): are investments usually issued by companies or governments to raise money (also known as ‘bonds’). The issuer agrees to make regular interest payments over the life of the bond, and to refund the full principal once the bond expires. The risk of a bond can vary based on who the issuer is and their credit rating.
- Property & infrastructure (medium-high risk): when you invest in property through super, this generally means investing in property funds or real estate investment trusts (REITs). The funds may buy commercial properties, such as storefronts or office spaces, and investor returns are generated through increases in property values and capital gains. Infrastructure investments refer to large-scale physical assets – such as roads, train lines, power stations, communications towers and public housing.
- Shares (high risk): represent a part ownership in publicly traded companies. Investor returns are generated from capital gains linked to the company’s share price, as well as dividends paid to shareholders.
- Alternative (varied risk): investments those that don’t fall into one of the other categories. This may include hedge funds, private equity, private debt, collectibles, commodities and currencies. The expected risk and potential return vary for each type of investment.
