Superannuation funds come with different investment options for your money to grow over time. The super fund you choose invests your money into different types of assets, like shares, property, and bonds. There are different investment options with varying risk degrees.
Usually, super funds let their members choose the investment options. We have explained them below for you.
1. Growth:
This one sits at the highest end of the risk spectrum. This is a high-growth investment where you invest about 85% in properties or shares or 100% in high-growth investment. The aim is to get a higher than average return; hence higher than average risk is also involved. So, you need to be careful as with higher than average profit; you may also face higher than normal losses during bad years. But this higher-risk investment is also known to earn the highest returns over the long term.
2. Balanced:
A balanced investment aims for reasonable returns but balances between profit and risk. This obviously gives less profit than growth funds, but the risk taken is also much lesser hence loss you will incur will also be on the lower side. A balanced investment means about 70% will be invested in property or shares, and the rest would be put in a fixed interest investment or cash.
3. Conservative:
As the name suggests, the conservative investment option is a low-risk investment option. This also means you will be accepting lower returns in the long term. Here you generally will be investing only 30% in shares and property and the rest in fixed interest or cash.
4. Cash:
This is a low-risk, lower-return option where 100% of your super gets invested in a capital-guaranteed life insurance policy or something similar. This will give you peace of mind and guarantee that your capital and earnings do not reduce due to losses on investments. But this strategy earns the lowest returns, which is just slightly above inflation.
5. Ethical:
If you are willing to grow your investment but prioritize the environment, hence not at the expense of endangering, this may be the best option for you. This ethical investment option invests only in companies that meet environmental and social standards. The strategy followed here is ethical and can sit between the risk spectrum from anywhere from conservative to high growth.
What Level of Risk Should You Be Comfortable With?
As you have seen above, the super funds let you invest in a wide range of investment options with varying risks. A few are way riskier than others. Investments made on shares or property have the highest risk factor as compared to fixed interest or cash. But they also offer you a maximum benefit over the long term.
Fixed interest and cash have the lowest risk, but they offer lower returns too.
So when you make investment decisions, it is important to consider your current situation. If you have just started your career, then it is a great time to go for higher-risk investments, as you have a long time for it to benefit. You can also take more risks during the early years of your job. Your appetite for taking risks is also something you need to consider. If you are nearing the age when you would want to access your super or nearing the retirement age, go for lower-risk investments, which is conservative. Higher risk investment should be avoided as you may not have enough time to incur huge profit, but if there is a loss, it would be a big chunk of your retirement money taken away.
As you have done your research on super, you can get to retirement planning straight away as it is never too early to start saving for your retirement.