Super in a volatile environment

What are your options for securing your retirement?
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02.Managing risk

Different ‘asset classes’ offer different levels of risk and potential returns — the higher the risk of losing money, the higher the return you’d expect from that investment.

The main asset classes, ranked from low to high risk (and expected return), are:

  • Cash
  • Fixed interest
  • Property
  • Shares

If share markets are giving you the jitters, you might be considering switching your super away from shares and into a safer haven, such as cash and fixed-interest investments. Don’t make hasty decisions which are likely to have a big impact on the money you have for retirement.

Nine out of 10 super fund members are invested in their fund’s ‘default’ option, which is diversified across different asset classes, spreading the risk. Typically, default funds have about 60% of their money in shares, 20% in fixed interest, 10% in property and 10% in cash.

However, these are just averages; our research found that default funds differ considerably, holding anything from 4% in cash deposits (industry funds) to 15% (commercial funds), for example. Check yours.

Most super funds offer a choice, so you don’t have to go with the default (which is usually a ‘balanced’ option). If you’re planning to withdraw your super as a lump sum in the next year or so, you might want to ‘lock in’ the gains you’ve made by switching to a conservative option that has about 60–70% in ‘safe’ investments such as deposits and fixed interest. Alternatively, if your money is likely to remain in the system for many years, you could maximise your potential returns by switching to a high-growth or ‘aggressive’ option that has 70–80% in ‘growth’ assets, such as shares and property, with the rest invested conservatively. Bear in mind that terms like ‘balanced’, ‘aggressive’, ‘safe’ and ‘defensive’ aren’t used consistently across the industry, so you’ll need to check your fund’s product disclosure statement for its definition.

When making your decision, it’s important to find a match between your investment timeframe, the returns you expect and your attitude to risk. Can you tolerate short-term market fluctuations in the expectation of better average returns over the long term, for example? You don’t have to withdraw your super when you retire or at age 65 — it can continue in the system, accumulating in value and providing you with an income for decades. Many people continue to view super as a long-term investment, even as they edge closer to retirement.


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