Superannuation investment options are not set and forget
It can be tempting to treat superannuation investment options as a “set and forget” decision. In most years, your annual statement may show what appears to be a satisfactory growth rate, so it can feel unnecessary to make changes. However, depending on your age and long-term goals, your superannuation fund account may benefit from a more suitable mix of investments.
Put simply, choosing the right superannuation investment options means finding an appropriate balance, for your personal circumstances, between growth potential and defensive security.
Understanding the difference between growth and defensive investments
Most superannuation funds offer a range of superannuation investment options, often under different names. These commonly include:
Growth or high-growth options
Growth-focused options typically invest heavily in shares and property. These assets tend to offer higher growth potential over the long term but can experience greater volatility in the short term.
Balanced options
Balanced superannuation investment options usually include a high proportion of shares, combined with fixed interest investments such as government bonds and, in some cases, cash.
Conservative options
Conservative options focus more on fixed interest and cash investments, with a smaller allocation to shares. This approach aims to reduce volatility while delivering more modest growth.
Extremely low-risk options
These options concentrate on term deposits or professionally managed cash funds. While they offer a high level of security, growth is typically much lower over time.
Some super funds automatically adjust your asset allocation as you age. If you prefer to actively manage your superannuation investment options, it’s important to check whether this feature applies to your fund.
Factors that should influence your superannuation investment options
While one investment strategy may suit you today, your superannuation investment options should evolve as your circumstances change. The most appropriate option for you will depend on several key factors, including:
Your age
Your tolerance for investment risk
How many years remain until retirement
Other assets held outside super, such as property, cash or a share portfolio
Examples of how superannuation investment options can change over time
Jessica, 25
With more than 35 years until retirement, Jessica can generally afford to choose high-growth superannuation investment options. Her long time horizon allows her to ride out short-term market fluctuations in pursuit of higher long-term returns.
Michael, 45
Michael plans to retire at age 60 and has accumulated other assets outside super. Having benefited from growth-focused options earlier in his career, he decides to shift to more balanced superannuation investment options to help protect his accumulated gains.
Amanda, 47
Amanda has a lower super balance due to working part time for many years. With around 20 years until retirement, she chooses higher-growth superannuation investment options in an effort to improve her long-term retirement outcome.
David, 61
Approaching retirement, David prioritises capital preservation. He selects conservative superannuation investment options to reduce volatility and protect the balance he has built over his working life.
Review regularly, but avoid frequent switching
It’s important to review your superannuation investment options regularly to ensure they remain aligned with your age, time to retirement and financial goals. While most funds allow frequent changes, switching in response to short-term market movements can result in missed opportunities when markets recover.
You should also monitor your fund’s performance and fees compared with other options in the market. If you decide to change funds, your employer can be notified using the Superannuation Standard Choice Form, available from the Australian Taxation Office:
https://www.ato.gov.au/forms-and-instructions/superannuation-standard-choice-form
Decisions about changing superannuation investment options or switching funds should not be made lightly. A licensed financial adviser can provide guidance tailored to your individual circumstances.
