Super choice survival guide

How to get the greatest benefit from super choice.
Learn more
  • Updated:6 Jan 2005

06.Investment options

It’s worth reviewing your super investment choices as part of reviewing your entire choice of fund. It’s critical to ensure your super contributions are invested in the right types of market for your financial needs and tolerance to investment risk.

When you join a fund you’ll have a range of investment options to choose from. While some ‘premium choice’ master trusts offer many options, some more than 200, most ‘value choice’ industry funds now offer at least three or four; larger industry funds offer around 10.

You can usually select from capital-guaranteed, capital-stable, balanced and growth options. Capital-guaranteed this option offers minimal risk but usually low returns. Growth options are high-risk but historically have higher long-term returns.

If you’re in a capital guaranteed option your money will be in low-risk investments — banks, building societies and other deposit taking institutions. Choosing a conservative investment option generally means a lower return than a more aggressive option. A riskier option may deliver higher returns but you can end up with a negative return too as the investment risk increases.

Around 80% of fund members have their super invested in the default option. It’s usually a balanced option, used when members don’t exercise investment choice. A balanced option normally has 70% or more of its assets in shares, property and alternative investments.

Everyone has their own tolerance to risk. If you have 30 years left in the workforce, you can obviously take more chances with your super savings and favour high-risk, growth investments like shares. If you have a few years of low or even negative returns there’s plenty of time to make up for those losses. You may want to consider more conservative options as you near retirement.

When to switch investment options

Most super funds allow their members to switch between investment options. This should be done with a high degree of caution. Small investors can often incur losses by attempting to follow market trends.

It’s sensible to review your investment options annually. Does it still match your risk profile and meet your financial needs? If the answer is ‘no’, consider making a switch or consult a professional financial planner.

Find out how many times a year you can switch without paying a fee. Some funds allow daily switching, but this is likely to come at an additional cost. Do you really need this option? You could be paying for a service you’ll never use.

It’s estimated that around 80% of super fund members don’t exercise their investment choice at all, instead leaving their money in their fund’s default option, typically a balanced strategy.

Again, this can be a problem if your fund has many investment options — you may be paying higher fees for unused options.