Choosing The Right Super Investment Option

Superannuation is essential to having enough money to live through retirement. Picking the right superannuation investment options throughout your superannuation investment journey helps protect your retirement portfolio from inflation and market volatility. A diversified retirement portfolio can provide an income for a worry-free retirement lifestyle.

This article discusses how to choose super investments and how you can make the right decision in picking the best super investment options for yourself.

Importance of Choosing Superannuation Investments Wisely

Superannuation is a long-term investment, so be prepared to ride out market fluctuations over the course of your working life. You must understand how superannuation funds are invested and choose the appropriate combination based on your financial circumstances and investment objectives.

Here are the four superannuation investment mixes:

1. Growth Investments focus on 85% shares/property, 15% fixed interest/cash, or 100% for a high growth option. It aims for higher average returns over the long term but can produce higher losses in bad years due to the higher risk exposure.
2. Balanced Investments focus on 70% shares/property, 30% fixed interest/cash, or a moderate option with 50% shares/property.
3. Conservative Investments focus on 30% shares/property, 70% fixed interest/cash, and aim to reduce the risk of loss, accepting lower returns over the long term.
4. Cash Investments focus on 100% deposits with Australian deposit-taking institutions or a capital-guaranteed life insurance policy, ensuring capital and earnings cannot be reduced by investments.

It is crucial to be actively aware of your superannuation investments and understand your asset allocation in order to meet your retirement goals. You can easily track your balance, consolidate multiple accounts for cost savings, and choose investment options that align with your risk tolerance and financial objectives through the assistance of your financial adviser or your superannuation online portal.

Types of Superannuation Investment Options

Australia offers various superannuation investment options with varying growth and defensive asset allocations, allowing members to select a plan based on their investment goals and risk tolerance.

Here are the common superannuation investment options available:

Pre-Mixed Investment Options range from conservative to growth assets. A conservative option offers lower risk but lower returns over the long term, while a growth option seeks higher returns but comes with higher risk.

MySuper is a default option where the super fund invests the money for the member. It’s designed to be a simple, cost-effective superannuation investment option.

Choose-Your-Own Investment Options are offered by some super funds, allowing you to create a personalised investment portfolio based on your risk tolerance and investment goals.

Single Asset Class Options include investments such as Australian Shares, International Shares, Property, and Fixed Interest. Each option focuses on a single asset class and allows members to tailor their investment style.

Ethical Investment Options aim to screen out investments in companies that don’t meet certain environmental, social, and governance standards. An ethical option can range from high growth to conservative.

Super Investment Options

Superannuation investment options are diverse and can significantly impact the growth of your super balance. Here are some common super investment options:

Shares/Equities: Investing in individual company shares, private equity or share-focused managed funds offers significant long-term gains but comes with higher risk due to market volatility.

Property: Investing in commercial or residential properties directly or through a property fund offers rental income and potential capital growth, but also carries risks like market fluctuations and property-specific risks.

Fixed Interest/Bonds: Investing in government or corporate bonds and other fixed-interest securities offers regular income and lower risk compared to shares, but it may have lower potential for long-term growth.

Cash: This option involves holding your super in a cash investment, such as term deposits, a high-interest savings account or cash investment within your super fund. It offers stability and capital preservation but generally has lower long-term return potential compared to other asset classes.

Managed Funds: These funds pool money from many investors to create diversified investment portfolios of shares, property, fixed interest, and cash. Managed by professional fund managers, they can offer diversification and professional investment management, suitable for those who prefer a hands-off approach to investing.

Factors to Consider When Choosing Superannuation Investments

When choosing superannuation investments, several key factors should be considered when making informed decisions that align with your financial goals and retirement plans.

Investment Strategy: Reviewing your investment strategy is important. To reach your financial goals, you need to find the right balance between risk and return.

Investment Timeframe and Risk Tolerance: To manage your super, consider your investment timeframe, desired level of involvement, and comfort with investment risk. Selecting diverse investments can help offset the risk associated with different asset types.

Investment Fees and Charges: Over time, investment fees and charges associated with your super fund can significantly affect your super balance, with higher fees and charges potentially reducing your retirement savings and reducing your nest egg.

Contribution Rates and Frequency: Contributing frequently to your super account can enable you to save more for retirement, make the most of compound interest, and lower your tax obligations.

Investment Flexibility and Performance: Consider the investment flexibility and performance of your chosen super fund. Investment performance after fees and expenses is a crucial comparison, and super funds offer a wide range of investment choices, so it’s important to compare performance on an “apples v. apples” basis.

Seek Professional Advice

Seeking professional investment advice when making superannuation investment decisions is highly valuable. Here’s how a qualified superannuation financial adviser can help:

Customised Strategy: Financial advisers can assess your individual financial situation, including your super balance, age, and retirement goals, to develop a personalised investment strategy.

Risk Assessment: They can help you understand your risk tolerance and choose investment options that align with your comfort level, whether you prefer conservative, balanced, or growth-oriented investments.

Diversification: A financial adviser can recommend a diversified investment portfolio across different asset classes such as shares, property, fixed interest, and cash to help manage risk and optimise investment returns over the long term.

Regular Review: They can provide ongoing monitoring and regular reviews of your investment strategy to ensure it remains suitable for your changing circumstances and market conditions.

Maximising Returns: By staying informed about market trends and investment opportunities, financial advisers can help maximise the growth of your super balance while managing risk.

Summary: Choosing The Right Super Investment Option

Most super funds offer a range of investment options, from conservative to growth assets, and it’s worth taking the time to check your options and decide what’s right for you.

Remember that super is a long-term investment, and it’s essential to understand investment basics such as investment options, risk, returns, investment strategy, and investment time frame to make informed decisions.

Choosing the right investment option is crucial for a successful and secure retirement.

Note that past performance doesn’t predict future returns. This is why taking an active role in managing your superannuation investments and staying informed best maximises the potential of your superannuation. This helps you make an investment choice aligned with your age, investment time frame, risk tolerance, and retirement objectives.

It’s also important to review your strategy regularly and seek financial advice if necessary.

Get Superwise About Your Superannuation with Newcastle Financial Planning Group 

Superannuation is vital to your financial future in retirement. Whatever stage you are at in your career, learning to make the most of your long-term retirement savings plan is always good practice.

At Newcastle Financial Planning Group, we can provide the specialist advice, expert knowledge, and guidance you need to make the right financial decisions for your superannuation strategy, so you can confidently look forward to your future.

Call us or book online to secure your first appointment with us today and get started!

 

References:

• https://www.sydney.edu.au/news-opinion/news/2024/01/30/5-things-i-wish-i-knew-about-superannuation.html
• https://moneysmart.gov.au/how-super-works