How do assest classes affect super

An asset class is really just a type of investment. The main asset classes that people refer to are cash, fixed interest, property and shares. The reason why it's so important to understand asset classes is because they each have different levels of risk and return - the main criteria by which investors generally choose what they invest in.

Understanding what to expect from the different asset classes will help you decide which types of investments best suit your needs and investment timeframe. For example, investing in shares may deliver good returns over the long term (5+ years). But you also need to be aware that the short term returns may fluctuate dramatically from day to day and it's very likely they will sometimes be negative. You need to decide if this is something you feel comfortable with.

By investing in more than one asset class you can diversify your investments and reduce your risk. Below is a short description for each asset class, an indication of the risk and potential return for each asset and a minimum suggested timeframe.*

Referred to as Defensive assets
(focus on generating income only)
Cash generally refers to investments in bank bills and similar securities which have a short investment timetable. They provide a stable, low risk income, equally in the form of regular interest payments.
Fixed Rate

Mostly government bonds, corporate bonds, mortgages and hybrid securities which generally operate in the same way as loans. The income return is usually in the form of regular interest payments for an agreed period of time.
Risk and potential return: Risk and potential return:
Minimum suggested timeframe:
No minimum
Minimum suggested timeframe:
1-3 years
Referred to as Growth assets
(focus on capital growth and income)
Property securities

Property securities are shares in property investments that are listed on share markets. Sectors include commercial, retail, hotel and industrial property.

Australian shares

A share represents part ownership of a company. Shares are generally bought and sold on the stock exchange. Returns usually include capital growth (or loss) and income through dividends which may be franked (ie the company has already paid tax on the earnings).

International shares International shares generally work the same as Australian shares. The additional benefit is the increased opportunity to invest in a much wider range of countries (eg Europe, Asia) and a broader selection of companies (eg Microsoft, Johnson and Johnson) outside Australia. However currency valuations can negatively affect performance.
Risk and potential return: Risk and potential return: Risk and potential return:
Minimum suggested timeframe: 3 -5 years Minimum suggested timeframe: 5-6 years Minimum suggested timeframe: 5-7 years

* The risk indicators and minimum suggested timeframes used for each asset class are illustrative only and should not be considered advice.

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The information contained in this document is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352 AFS Licence 232468 has of the relevant Australian laws as at 1 July 2009. This document is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Product Disclosure Statements (PDS) for products offered by Colonial First State are available from or by contacting us on 13 13 36. You should read the relevant PDS and consider whether the product is right for you. Past performance and awards are no indication of future performance.