How to get the balance right in your superannuation investment settings

It can be tempting to treat superannuation as a ‘set and forget’ investment. In most years, your annual statement will show what appears to be a satisfactory growth rate, so why tamper with something that seems to be working reasonably well? However, depending on your age and goals, your superannuation fund account could have a more suitable mix of investments.

Put simply, you need an appropriate blend – for your particular circumstances – of growth potential and defensive security.

Understanding the difference between growth and security investments

The following investment strategies (under varying names) may be available in your super fund:

• Growth or high growth

Shares and property, typically have more growth potential over the long term, but come with the risk of market volatility in the short term.

• Balanced

A reasonably high proportion of shares, but with some fixed interest (such as government bonds) and perhaps cash deposits.

• Conservative

A focus on fixed interest bonds and cash, with a much smaller proportion of shares.

• Extremely low risk

A concentration on term deposits or professionally managed cash funds, possibly to the exclusion of any other type of asset: ultra-secure but offering much lower growth.

Some super funds automate the asset allocation change as you age, so it’s worth checking if you don’t want this to happen.

Factors that should affect your superannuation investment choices

One of the above investment strategies may be suitable for you right now, but as your situation changes, so should your superannuation choices in order to maximise either your returns or your security. Your decision will depend on:

• Your age

• Your risk tolerance

• How many years until your retirement

• Other assets you have outside super, such as your own home, rental property, cash or a share portfolio

Possible scenarios

• Jessica, age 25, has at least 35 years to go until retirement. As a younger investor, with 20-40 years of working life ahead of her, she can afford to choose high-growth superannuation options. She has time to weather any short-term market volatility in exchange for higher long-term gains.

• Michael, 45, hopes to retire when he can access his super at age 60. He and his partner have plenty of equity in their home as well as other investments, and he’s benefited from the growth options in his super over the last two decades. He’s decided to consolidate his gains by adjusting his superannuation to a more balanced portfolio. He can always change his mind at a later date.

• Amanda, 47, is not a homeowner and has a lower-than-average balance in super because as a single mother, she has worked only part-time for the last 20 years. Although she now works full time, she does not expect to retire until she can draw a part-age pension at age 67. Since she still has 20 years of working life remaining, she has decided to switch to a high-growth approach to her superannuation in the hope of boosting her retirement income.

• David, 61, has a healthy superannuation balance and is looking forward to retiring shortly. He would like to protect the superannuation he has accumulated and will be content with only moderate growth. He has decided to opt for a conservative portfolio.

Review regularly but don’t switch too often

You should review your superannuation options regularly to ensure they remain aligned with your age, years to retirement, and financial circumstances and goals. Although you can change your superannuation options as often as daily, this is definitely not recommended. Switching frequently based on short-term market downturns may mean you miss out on gains when the market recovers.