How to Invest Your Super: Choosing the Right Options
Take control of your superannuation. Understand investment choices, align them with your goals, and manage your retirement savings effectively.
Superannuation serves as a compulsory retirement savings system, primarily involving employer contributions directed towards an individual’s superannuation fund. While contributions are mandatory, individuals retain important choices regarding how these accumulated funds are invested for their long-term financial security. Understanding these investment options and actively managing them can significantly impact retirement outcomes. This article explores how to navigate these choices to align with personal financial goals.
Understanding Superannuation Investment Options
Superannuation funds offer various investment options, each with distinct characteristics and risk profiles. Default investment options, often referred to as MySuper products, typically provide a diversified, low-cost approach, suited for members who prefer a hands-off strategy. These products commonly feature a ‘single diversified’ or ‘lifecycle’ investment strategy, where the asset allocation automatically adjusts based on the member’s age, transitioning from growth-oriented to more conservative as retirement approaches.
Beyond default options, super funds provide pre-mixed or diversified options tailored to different risk appetites. These include categories like conservative, balanced, growth, and high growth, each with varying allocations to asset classes such as shares, fixed interest, property, and cash. For instance, a high growth option might hold around 85% in shares or property, aiming for higher long-term returns but with increased volatility, while a conservative option might allocate approximately 70% to fixed interest and cash to reduce risk.
Some funds also offer sector-specific or single asset class options, allowing members to invest directly in areas like Australian shares, international shares, or property. Additionally, ethical or sustainable investment options focus on environmental, social, and governance (ESG) factors, aligning investments with personal values by supporting responsible companies and excluding those involved in harmful activities.
Developing Your Investment Strategy
Determining the appropriate investment strategy involves a careful assessment of personal financial circumstances, goals, and risk tolerance. Risk tolerance reflects an individual’s comfort level with market fluctuations and potential investment losses.
The investment horizon, or the time until retirement, plays a significant role in shaping choices. A longer time horizon generally allows for a greater allocation to growth-oriented assets, as there is more time to recover from market downturns. Conversely, a shorter horizon suggests a more conservative approach to protect accumulated savings. Defining clear financial goals, such as desired retirement income or specific life stages like early retirement, further helps in selecting suitable investment options.
Diversification is a principle for managing investment risk, involving the spread of investments across various asset classes, industries, and geographical regions. This strategy aims to mitigate the impact of poor performance in any single investment by offsetting it with positive returns from others, thereby reducing overall portfolio volatility. While super funds often offer diversified pre-mixed options, those managing their own portfolios must actively ensure adequate diversification. Seeking professional financial advice can provide tailored guidance, helping individuals align their risk profile and goals with appropriate investment strategies and navigate complex market conditions.
Making Changes to Your Super Investments
Implementing changes to superannuation investments is a procedural process managed through the super fund’s online platform. Members first access their super fund account using their login credentials. This digital access point serves as the primary interface for managing account details and investment preferences.
Once logged in, individuals navigate to the investment section, which is often labeled as “Change Investment Options,” “Investment Choice,” or “Manage Investments.” This section provides the functionality to review current investment allocations and initiate changes. There are two primary types of changes available.
The first type involves changing existing superannuation balances, known as an investment switch. This process allows members to reallocate their accumulated funds from one investment option to another, or to new proportions across multiple options. Members select their desired new options and specify the percentage of their existing balance they wish to move to each.
The second type of change involves directing future contributions into different investment options. This ensures that all new money entering the fund is invested according to the updated strategy. After making selections, members review a summary of their proposed changes and confirm the transaction. Processing times for these changes can vary, but take a few business days to complete. It is advisable to check for confirmation from the fund and retain any documentation of the changes for personal records.
Reviewing Your Investment Performance
Regularly monitoring superannuation investment performance is a proactive step in managing retirement savings. Individuals can access performance reports through their super fund’s online portal or annual statements, which provide details on how their chosen investment options have performed. Metrics to review include net returns, which reflect the investment earnings after deducting fees and taxes. Comparing these returns against benchmarks or other available options within the fund can offer insights into the effectiveness of the chosen strategy.
Understanding the fees associated with superannuation is also important, as they directly impact net returns over time. Common fees include administration fees, covering the general costs of managing the account, and investment fees, which are charged for managing the underlying investments. Some funds may also charge performance fees if certain investment targets are exceeded, or transaction costs related to buying and selling assets.
Establishing a regular review schedule helps ensure the investment strategy remains appropriate. Significant life events warrant an immediate review of the investment strategy to ensure it aligns with evolving circumstances and financial goals. Similarly, substantial market shifts can prompt a re-evaluation of current allocations. These periodic reviews provide an opportunity to make necessary adjustments to maintain alignment with long-term objectives and risk tolerance.