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How does a conservative super fund work?

Vidhu Bajaj avatar
Vidhu Bajaj
- 4 min read
How does a conservative super fund work?

Choosing the right super fund for you is crucial because the amount of super you accumulate can decide how comfortable your life is after you retire. However, when making this decision, you need to understand how your super fund invests the money in your account.  

How money is invested is crucial when growing your super balance, it can happen fast or slow. For instance, the default investment approach in most super funds will balance the risk against the growth in funds. However, you may want to choose a riskier, high-growth investment or a more conservative super fund investment. 

Depending on your choice, your super fund will invest the money in your super account in a range of assets. The value of these assets may either steadily increase or grow over time, or decline based on market conditions. 

Your investment choice can also change over time. You may take more risks when you’re younger and can potentially recoup any losses. In contrast, you may choose a more conservative option when you get closer to retirement. Check what your super fund offers.

If you’re deciding which type of investment strategy to take, find out how a conservative super fund investment works and how it impacts your retirement savings.

When should I choose to invest my super conservatively?

If you’re not really into high-risk investments, you may find choosing a conservative super fund more your style. A conservative super fund invests your money in various interest-offering cash deposits that offer more stable returns. 

However, you may also want to consider the length of time you’ll be depositing funds in your super account before deciding on an investment strategy. You may not like high-risk investments in your personal finances, but if you’re young and won’t be retiring for decades, you may want to consider trying some high-risk investments to help boost your super. You can then switch to a more conservative super fund investment strategy as you get closer to retirement and don’t have time to make up for any losses.  

Super investment options typically involve spreading your money across multiple assets. There may be opportunities for you to fine-tune your investment by moving more money into certain assets. You could invest, for example, about 20 per cent of your super in stocks or land and still maintain a conservative investment profile overall. On the other hand, a high-growth investment option may involve investing just 20 per cent of your money in cash deposits. Some super funds may also let you invest in a single type of asset if that’s more your style. 

Before making any decisions, you should compare the returns of various super funds and the investment choices they offer. Super funds will publish the returns each of their investment options make over the previous three years.

How do I compare different conservative super funds?

When comparing various super funds and their investment options, you should look at the returns offered and the fees charged, along with considering how long you’ve got until you retire. Knowing these numbers, you can then estimate the amount of super you’ll likely have at retirement. Conservative super funds usually offer a lower return percentage than other super funds. Still, these returns will be more stable, and any returns will add up over time to help support your retirement. 

Suppose one conservative super fund offers a return of 5.5 per cent per annum, and another offers 6 per cent per annum, while both charge 7 per cent per annum in fees. Over 20-30 years, the half per cent difference can translate into a higher super fund balance when you retire. However, the amount of super you contribute is also crucial to the overall growth. If you’d prefer a conservative super fund, you could increase your contributions to see higher returns with fewer risks. 

You may also want to look at and compare the assets that will be involved in your investments. If you can, you may prefer to invest in a single type of asset based on the level of risk you’re comfortable with. Remember to check the investment options your super fund offers and discuss your investment choice with your super fund manager. You can also learn about the different types of super funds available and consider switching. 

You can check our guide on how to switch your super fund if you find a super fund that offers an investment strategy that aligns with your beliefs and overall plan.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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Product data updated on 23 Jul 2024