While you work towards your golden years, your super is working hard too, thanks to investments that aim to grow your nest egg over time.
How you invest your superannuation impacts the amount of money you have at retirement. For this reason, it’s worth taking the time to understand the different super investment options available in Australia. Here’s a guide to get you started.
What assets can I invest superannuation in?
Investment assets fall into four classes: shares, property, fixed interest and cash.
One difference between each asset class is how much financial risk they come with. Shares and property are considered ‘growth assets’: they come with a higher risk of loss compared to fixed interest and cash, but generally offer better returns over time. Cash and fixed interest offer stable returns with less risk. Super funds often call them ‘defensive assets’, as they aim to protect your super from loss.
Who chooses which assets my super is invested in?
Super fund trustees invest your money into different assets, based on the investment strategy you choose.
Most funds offer different investment ‘options’ you can select from. Based on a combination of assets, each option offers a certain level of risk and expected growth. For example, a ‘growth option’ may invest 85 per cent of your super in shares and property to produce higher-than-average returns; a ‘conservative option’ may invest most of your super in fixed interest and cash to reduce the risk of loss; a ‘moderate’ option may aim for a balance between the two.
I want more control over my investments. What about an SMSF?
As the name suggests, a self-managed super fund (SMSF) is a fund where you are a trustee with complete control over how your super is invested.
Along with ensuring the SMSF meets Australian regulatory requirements, trustees develop and implement their fund’s personal investment strategy. This makes an SMSF an appealing option for those who want more control over how their super is invested.
Investing your super in Australian shares
One common option people take with superannuation investments is Australian shares. Often driven by the big banks and mining companies, Australian shares are historically strong performers with a good track record.
It’s worth keeping in mind that some periods of negative returns are expected if you invest in Australian shares over a long period of time. Pros and cons of investing your super in Australian shares include:
Pros of investment in Australian shares
- A familiar market makes it easier to monitor share performance
- Shares are a liquid asset, easy to sell when needed
- Although negative returns are expected over the short term, shares can offer substantial growth over an investment time-frame of more than 10 years
Cons of investment in Australian shares
- Increased risk compared to fixed income assets, as share prices can fall
- Some prefer to invest in global shares for potentially higher returns
- Share values fluctuate, so your dividend may vary month to month
Can I change my investment allocation?
It is common to adjust your investment strategy as your life stage changes, whether it’s to take on more risk for higher returns, or to protect your capital as you approach retirement.
Most super funds in Australia let you reallocate some, or all, of your super into a different investment option over the phone or online. Before you switch, check if your fund charges a switching fee, or limits the number of times you can change options over a certain period.
