Superannuation will be one of the biggest financial investments you make

For many, 11.5% of your salary is being contributed into a superannuation fund on your behalf. There are also additional options available for you to make voluntary contributions into super, either through salary sacrificing, through personal deductible or personal after-tax contributions, and even downsizer contributions.

These options can be great, as they help you get more savings into a low tax environment, and have the long-term benefit of growing wealth towards your future retirement needs.

Or perhaps you have retired, and your focus is likely to be on maximising the income available to you throughout your retirement years - an income that is reliable, that will last, that you can access as needed.

Either way, once the money is in superannuation, have you thought about what it could be doing? An important consideration for any investment is your investment strategy, which is the mix of different investments you have, to help you work towards your goal. Just because you have the money inside super doesn’t mean you shouldn’t give the investment strategy that same level of consideration. Remember, superannuation is essentially a vehicle for holding your investments. Superannuation is for the longer term, and you get tax breaks for having the money locked away, but the underlying investments are subject to the same market risks – whether inside super or outside of it.

So how can you set your investment strategy and make sure it is working for you? Here are some things you might want to consider.

1. Define your goals and approach

There are many ways you can have an investment strategy in place. In some instances, it may be a default strategy put in place for you based on your age. In other cases, you can choose from some pre-designed options or even build your own. Having a strategy and understanding it is the first step.

When setting your investment strategy, it is helpful to understand your goals and approach to clearly define what you are looking for - to support you during or as you approach retirement.

• Understanding what you are looking for in the long term will help shape your overall investment approach. This could include setting investment goals that consider factors such as long-term growth, desire for income-producing investments, or a mix of both.
• What is your planned retirement age and how many years away is it?
• What are your retirement income needs?

2. Consider how you would feel if markets suffered a fall

Sometimes this is referred to as ‘risk tolerance’ or ‘risk appetite’. Most investments do come with some level of risk - it’s just that the risk varies. Consider how you would feel if you were invested in the share market and it fell by 10%. Would you be worried? Would you have regrets? How long would you be willing to remain invested to see if markets recover? Is a 10% fall OK? What if it was bigger or smaller?

As everyone is different, considering these aspects can help you determine your own personal risk tolerance level. Knowing this, you can consider which investments are right for you and how you might distribute your super across these investments.

This will help you manage risk based on your risk tolerance, asset mix, and time horizon.

3. Pick your investment mix

Once you know your risk tolerance, think about which investments are right for you. This is generally about what the right mix of investments is across different asset classes. If you have a low level of risk tolerance (sometimes referred to as a ‘conservative’ risk profile), you might have a larger portion of your investment mix in more stable assets – things that are less likely to fall in capital value. This might be cash or fixed interest type investments. But you shouldn’t necessarily forget about having some money invested into growth assets, like shares and managed funds. These investments do carry a higher level of risk, but just as they can fall in value, they also offer the potential to give you capital growth, which may help accelerate your overall wealth accumulation.

To help find this balance with the investment mix, you can define criteria for selecting investments or guidelines for when changes might need to be made. Having these guidelines will reduce the emotional decision-making.

The key is having the right mix of investments for you. As the saying goes, ‘Don’t put all your eggs in the one basket’.

4. Review your investment strategy

Once you have an investment strategy in place, don’t simply set it and forget it. It’s important to review your investment strategy regularly – at least once a year. Are you still happy with the strategy you have in place? Should it be changed? Has your risk tolerance level changed, or have market movements resulted in your investment strategy no longer being aligned with your risk tolerance?

Once you have reviewed your investment strategy and potentially updated it to reflect any changes, the last step is to review this against your investments. Consider if your current investment mix and asset allocation reflect your updated investment strategy.

Remember, you don’t have to do it on your own. If you’re unsure which investment strategy would suit you best, you could consider accessing the help of a qualified financial planner to help you make the decisions that feel right for you.

Next: Making the most of your retirement finances