Super: Is it time to review your investments?
You may be missing out or taking unnecessary risks if you take a set-and-forget strategy to your super.
1. Identify your risk profile
Your risk profile is based on two things - your investment timeframe and your appetite for risk.
The longer you have until retirement, the more time you have to ride the ups and downs of higher-growth investments, such as shares and property. But if you’re planning to retire soon, you may prefer the security of a more conservative investment with lower growth potential.
You also need to consider how much risk you’re comfortable with. In general, the higher the potential for growth, the greater the risk. Higher growth assets are more strongly affected by market volatility, and there is no guarantee you’ll receive the level of growth you expect.
At the same time, it’s important to balance risk against the need to generate a high enough return to deliver the retirement lifestyle you’re looking forward to. After all, the risk of running out of money in retirement is perhaps the biggest risk of all.
Your risk profile depends on your investment time frame and preferred level of risk. By identifying your risk profile, you can choose a fund with an appropriate asset mix, offering the ideal balance between risk and return. Our online risk profile calculator is a great place to start. You can also read more about different asset classes and their general risk and return expectations.
2. Consider long term performance
Super is a long-term investment, so it’s important to look for a fund with the discipline and consistency to generate strong returns over the longer term. While it can be tempting to choose a fund that’s at the top of the performance tables today, remember that past performance is no indication of future performance, with changing market conditions often producing different results in different years.
A better approach is to look at the fund’s investment philosophy and the quality of their investment process. A comparison site like Morningstar or Cannex can be a good place to start. Then, when you find a fund you’re interested in, read the Product Disclosure Statement to find out how your money will be invested.
If you do decide to look at past returns, use the longest period available – preferably five years or more. And be careful to compare like with like. After all, you can’t expect a defensive fund to produce the same returns as a higher risk alternative.
3. Check the investment options
Diversification across asset classes and sectors is usually a beneficial way to reduce risk and smooth returns over time.
You can either choose a balanced investment option, with built-in diversification, or do it yourself by selecting your own mix of different investment options. Remember, too, that you may want to update your asset mix as you grow older and your risk profile changes. To make that possible, it can be useful to choose a fund that allows you to switch easily between options without paying too much.
4. Find value for money
Management fees can make a big difference to your returns over time, so it’s important to find a fund that offers good value for money. But value is about more than just the amount you pay – it also depends on the service you receive in return.
Here are some of the other features you need to think about:
But insurance premiums vary widely between funds, often dwarfing other management fees. That means it’s worth doing the numbers and working out your overall cost before you invest.
5. Get the right advice
After your family home, your super is likely to be your biggest asset – so choosing a super fund could be one of the most important financial decisions you ever make. Remember to always read the fund’s Product Disclosure Statement before you invest.
If in doubt, seek advice from a qualified financial adviser. They’ll take the time to thoroughly understand your lifestyle goals and individual situation, then help you find a fund to match.