Your super returns may be doing ok, but could they be better?
Being actively involved in how and where your super is invested, could make a real difference to your retirement savings over the long-term.
If you are considering going down this route, there are some factors to think about such as your retirement goals, how long you have until you retire and the amount of risk you’re comfortable taking on.
For instance, if you’re close to retiring, you may want to avoid putting your super somewhere that's too risky. Riskier investments tend to experience more ups and downs so time may help to ride them out.
This article considers four examples of investment strategies for your super.
The importance of diversification
Before we discuss the various investment strategies, it’s important to highlight the significance of diversification. Like any type of investment, spreading your super across different types of investment options, can help to build a strong portfolio1 and manage risk.
Because if you were to invest all of your super into one asset class such as property, your investment may suffer a loss if the property market was to fall in value. However, if you spread your money across multiple assets, you may have a different result.
Investment strategy type 1: Growth
If you don’t think you’ll be accessing your super for at least 10 years2 or more, a growth strategy may work for you as a longer timeframe may help an investment portfolio withstand volatility while aiming for returns.
A growth strategy that follows a higher risk, higher return approach tends to have a larger focus on assets that are exposed to capital appreciation. That is, investing in assets which are expected to grow at a higher rate than the industry or overall market.
For instance, this may involve an investment of around 70-85 per cent2 in shares or property with the rest in fixed interest and cash-based investments.
Historically, over any 20-year period, a growth strategy has delivered better returns than more conservative portfolios which would mainly be invested in fixed interest and cash. However, over a short-term period, you may experience significant losses as a result of market volatility.3
Another key benefit of a growth strategy is that by making greater returns on your investment, your savings are more likely to keep up with the rising cost of living. This is arguably important because over time inflation may reduce the value of your retirement savings, which could make it difficult to maintain your standard of living when you’re retired.
Investment strategy type 2: Balanced
Similar to a growth strategy, if you aren’t planning to access your super anytime soon, opting for a balanced investment portfolio may be another option.
This strategy is aimed at balancing risk and return so your portfolio has enough risk to provide reasonable returns, but not enough to cause significant losses.
A balanced strategy typically involves investing around 60-70 per cent2 in shares or property, with the rest in fixed interest and cash-based investments.
Investment strategy type 3: Conservative
You may be considering how you could protect your capital if you want to access your super within 3-5 years.
A safe or conservative strategy follows a lower risk, lower return approach so it’s really about preserving the value of your investment portfolio. While there may be less risk of losing money, a downside could be that your returns may not keep up with inflation.4
For example, this could involve investing around 20-30 per cent2 of your super in shares and property, with the rest in fixed interest and cash-based investments.
Investment strategy type 4: Ethical and sustainable
You may choose not to invest in certain companies based on ethical grounds. For example, taking a stance against investing in fire arms. This approach is called ethical or socially responsible investing.
There is also sustainable investing which goes beyond incorporating just ethical and social factors. That is, it approaches investing from an environmental and governance lens too. Some super funds now offer this, so if these factors are important to you, speak to your super fund for more details.
If you’re a self managed super fund (SMSF) trustee, there are a range of sustainable managed funds which you can tap into.
Review your investment approach
You may want to review your current investment approach with your super fund or SMSF to consider how it aligns with your goals and risk comfort.
For example, if you are looking to take an active role by directly investing your super in shares, exchange traded funds and managed funds, there are super products and platforms which enable you to do this.
Alternatively, a SMSF is an option that enables you to have more control over how your super is invested with the added bonus of being able to access more investment options such as direct property and commodities. You also have the ability to borrow within your super fund for investment. There are a number of administration requirements however, as well as legislative requirements to adhere to.
You may want to consider speaking to a financial expert when determining which super product may be best for you.
1 Money Smart: https://www.moneysmart.gov.au/investing/invest-smarter/risk-and-return/diversification
2 Money Smart: https://www.moneysmart.gov.au/tools-and-resources/publications/factsheet-choosing-a-super-strategy
3 Money Smart: https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-investment-options
This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 22 May 2019.
This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. It does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of investing in property, shares or superannuation can impact individual situations differently and you should seek specific advice from a registered tax agent or registered tax (financial adviser).
Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.