Choosing the right investment option for your superannuation is a big decision – it directly impacts your retirement savings. Understanding the different investment options and their risks can help you make the best choice for your situation.

Most super funds offer a rang of pre-mixed investment options, each with a different mix of assets. Here’s a quick breakdown:

• Growth: These funds focus mainly on shares and property, aiming for higher long-term returns. However, they come with a higher risk of short-term losses, making them more suitable for those with a long investment horizon.
• Balanced: With around 70% in shares and property, balanced funds aim for steady growth with less risk than growth funds. If you’re looking for a middle ground, this could be a good option.
• Conservative: These funds invest mostly in fixed interest and cash, focusing on preserving your capital. While returns are lower, they provide more stability.
• Cash: If you’re very risk-averse or nearing retirement, cash funds offer security, as they are entirely invested in cash or cash equivalents.
• Ethical: These investments avoid companies that don’t meet certain ethical or environmental standards. The level of risk varies, but they allow you to align your super with your values.

Other Investment Options

Some super funds let you pick individual asset classes (like Australian or international shares) and decide how much to allocate to each. Others, particularly platform-style funds, offer direct investment options such as individual shares, exchange-traded funds (EFTs), or term deposits. You don’t need a self-managed super fund (SMSF) to take advantage of these options.

Another option is lifecycle investments, which automatically adjust your portfolio as you get older – reducing risk exposure as you approach retirement. These are great for those who prefer a more hands-off approach.

Understanding Your Risk Profile

Before choosing an investment strategy, this about your risk profile – basically, how uncomfortable you are with potential ups and downs in your investments. Consider the following:

• Risk tolerance: Are you okay with short-term losses in pursuit of higher long-term gains, or do you prefer stability?
• Investment horizon: How long until you’ll need access to your super? If you have decades ahead, you might take on more risk. If retirement is around the corner, a more conservative approach might be better.
• Risk ratings: Super funds provide standard risk ratings that estimate how often an investment may have a negative return over 20 years. This can help you compare different options.

Picking the right investment option for your super is a personal decision based on your financial goals and comfort with risk. Helpful resources like ASIC’s Moneysmart website can provide guidance, and many super funds offer free investment advice.