How to choose the right Super investment options

Your future prosperity largely depends on how well you invest your Super. A self-managed super fund (SMSF) can give you greater control over your financial future, and may allow you to build a bigger nest egg.

When it comes to managing your own Super, it’s important to understand that investment boils down to two factors: risk and return. Every investment contains an element of risk, as well as the capacity to provide a return. The key to clever investment risk management is finding profitable assets with an acceptable level of risk that suits you.

Your investment strategy must be tailored to suit every member of your SMSF. There are several investment strategies you can take, which are commonly grouped into four categories: growth, balanced, conservative and cash.

SMSF super investment

Growth investment options for long-term investors

Growth assets provide a return when the value or price of an asset increases. The investment risk level is considered comparatively higher because although its value can rise quickly, it also can fall quickly. A bad financial year will equate to a bad year for your Super. To make the most of a growth investment strategy, you might invest most (or even all) of your Super into shares and property. Because this growth strategy poses a higher risk factor, it is better suited to those with long-term investment goals, who are prepared to weather the storm of changing markets.

Balanced investment options for medium-term investors

Balanced investments represent moderately less risk but potentially less profit than growth strategies. This approach involves quite a large investment in property and shares, but is tempered out with around 30% of your total investment in more stable assets such as cash and fixed interest. Balanced investments can be perfect for those who are happy to take moderate risk, but don’t have the time and capability to take a big risk.

Conservative investment options

Conservative investments act exactly as you would expect. They are slow and steady – low-risk and may be perfect for members with shorter investment periods and reticence to taking big risks. You would still most likely invest about 30% in shares and property, but the majority of your Super would be tied up in low-risk investments such as fixed interest and cash assets. Although your SMSF would receive a lower return over time, it is less likely to suffer should the value of your growth assets suddenly drop.

Cash investment options

Cash investments are by far the safest option, but may offer the smallest investment return. Your entire Super is invested in the stable asset of cash; this approach is relatively defensive, protecting your capital against any market fluctuations. If you are looking for the best short-term investment strategy, and are not prepared to take any risks, then cash may be the best option for you.

Striking a balance

The choice between high-risk and high-reward Super strategies, or low-risk and low-reward Super strategies, is entirely personal. With any growth or balanced strategy you may have less profitable years, but you will most likely come out with more Super in the long run should you persist over many years. If, however, you do not have much saved and hope to access your Super sooner rather than later, one bad year could be devastating. In this case, conservative and cash options are the safer bet.

When deciding which investment approach is best for your SMSF, you can consider the following:

    your age
    the amount of risk you are prepared to take
    how much risk your Super balance could withstand
    the time you can wait until you can access your funds
    when you are planning to retire, and
    the lifestyle you hope to lead in retirement.

Every single one of these factors has implications on your Super. Super is a valuable asset in itself, and you should always consider its longevity.

The right investment strategy will help you live the retirement you want. To get there, you need to find your own balance between risk and reward.

If you want to learn more about SMSFs, download an information pack today.

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