CHOOSING how your superannuation is invested will make a bigger difference to your financial future than deciding who looks after your nest egg.
And with investment option names ranging from stable and basic cash to high-growth and sustainable diversified, it’s easy to get confused by the choice.
Super funds name their investment options differently so it’s best to examine the assets behind the name.
You can check online just how much of your money is sitting in shares, cash, property, infrastructure and other areas.
Most major funds have between eight and 12 standard investment options, and can be separated into three key areas — defence, growth and a bit of both
If you can’t stand short-term investment losses, defence is the place to be.
Investment option names include cash, stable, capital guarantee, diversified bonds and conservative. These typically suit retirees who need certainty, but the investment returns will be much lower than other options in the long run.
“There’s very little risk of losing money but often they’re not going to keep up with inflation,” says Paul Schroder, group executive membership of the nation’s biggest fund, AustralianSuper.
Higher risk brings higher rewards over the long term, but there can be sharp falls in the short term because of volatility in financial markets.
Investment options in this category include 100 per cent equities, high growth, Australian shares, international shares and sustainable diversified.
These investment options were smashed during the Global Financial Crisis but have generally bounced back and are worth more than their pre-GFC highs, and performed much better than defensive options.
A BIT OF BOTH
Balanced, active balanced, conservative balanced, sustainable balanced and MySuper are some of the investment options that give you a broad mix of growth and defensive assets.
They are typically the default investment option offered by a super fund, where about 80 per cent of Aussies have their nest eggs.
“Very often the default option is the best offering.
The trustees of the fund spend a lot of time thinking about the default fund and try to construct and investment option that suits most people most of the time,” Schroder says.
“It’s important to choose a good fund, one that has better investment performance and lower fees.
“Understand what you are invested in because almost every fund invests in a mixture of shares, property, infrastructure, fixed interest and cash, and it’s the mixture of these different assets that makes the difference in the long term.”
There’s also a trend towards offering direct investments into individual shares or fund managers, so if you’re feeling choosy you can check with your fund.