Around two thirds of working Australians haven’t actively chosen where their super is invested¹, so their money is put into their fund’s default investment option. This is often a diversified balanced option, with a medium to high level of risk.
For many people, a balanced option may be best, as they are typically designed to try and maximise returns without taking on too high a level of risk.
But did you know that Hostplus offers a range of other investment options that will invest your money in different ways?
The decisions you make now can make a big difference to how your super grows, so taking the time to check that your super is invested in line with your personal financial objectives is an important step everyone can take.
The good news is, once you understand the basics of how your fund’s investment options work, it’s a lot easier to choose an option that’s right for you.
Here are three tips to get you started.
Investment options are normally categorised as either low, medium or high risk. This is one of the most important factors to consider when choosing an option, because with investments, risk and returns are related.
In general, the lower an investment’s risk – or likelihood of losses – the lower the expected return, and vice versa. If you’re comfortable with the possibility of fluctuating, or potentially negative, returns in the short term, you may prefer a higher risk investment option, as it has the potential to deliver higher returns over the long term.
The next thing to consider is the types, or classes, of assets an investment option invests in. For example, common asset classes include cash, fixed interest, credit, equity (shares), property, infrastructure and alternatives.
Each asset class has its own level of risk and expected return; generally, cash and fixed interest are low risk/return, while shares are higher risk/return.
One way to get a good spread across different asset classes is to consider investing in a pre-mixed (or diversified) option. Most funds offer a balanced option, which is a good example; these balanced options will have a certain amount of “growth” and “defensive” assets in them. Other pre-mixed options, such as “high growth” or “conservative”, offer a higher allocation to shares or to cash and fixed interest, respectively.
At Hostplus, we also offer options that invest entirely in one type of asset class, called “single sector” options.
For instance, you might be a long way from retirement and have a higher risk appetite, so you may prefer to invest just in shares. Or, if you’re closer to retirement, or generally more risk-averse, a cash or fixed interest option may appeal more to you.
You might even choose to select multiple single sector options and pick how much you want to invest in each, effectively creating your own “mixed” option.
Many super providers, including Hostplus, also offer investment options with an emphasis on ethical investing. These are often labelled as SRI (socially responsible investing) or ESG (environmental, social and governance) options.
These investment options typically avoid certain types of investments – like fossil fuel companies or weapons manufacturers – and/or seek to invest in areas considered to make a positive impact, like “green” energy projects. Sometimes they focus on one specific issue, such as climate change.
If you’re considering specifically themed options as part of your investment choices, such as an SRI option, it pays to seek out more detailed information from your fund to understand the investment approaches taken by these options.
As a Hostplus member, you can switch between investment options at any time by simply logging into member online.
Or if you’re unsure, you can speak to one of our financial planners, like me. They can help you determine your personal risk profile, check your insurance cover and other objectives, and help you select the investment option(s) that are right for you. They may also provide financial advice on issues outside of superannuation.
Visit our financial planning website or call 1300 467 875 (or 1300 348 546 for pension members) to speak to a Hostplus financial planner today.
Your future self will thank you for it.