Risk and return

Your super is invested in financial markets, and therefore you are exposed to investment risk.

What is investment risk?

Investment risk is the degree to which returns go up and down in value over time. You cannot consider return without risk and, generally, the higher the potential return, the higher the risk.

In order to achieve higher returns, you must be willing to take on more risk. While shares, property and fixed interest securities historically offer higher long-term returns than cash, they also expose you to higher levels of risk, particularly in the short term. The variability of returns is a risk associated with investment and the assets that offer higher potential returns generally have the highest fluctuations in returns. The assets that have lower risk (and lower potential returns) generally have less pronounced fluctuations in returns.

What are the risks?

The significant risks associated with your investment include market risk, currency risk, individual investment risk and inflation. These risks can apply to all investments and are influenced by changes in global economies and financial markets.

Changes to laws governing superannuation and taxation can affect the value of your investment and your investment options. Legislative change is a risk that should be considered when making investment choices.

There are risks in choosing particular investment options, as all investments are subject to varying risks and generally all investments change in value over time. Different asset classes perform differently at different times.

There are also personal risks that can influence your ability to earn enough income to provide for you or your family. Personal risks can affect your ability to contribute to your superannuation investment and could significantly change your retirement lifestyle. Personal risks can be managed by maintaining an appropriate level of insurance cover.

Learn more about the significant risks that an investor could encounter or risk as it applies to specific asset classes.

What if I choose low risk options?

In financial terms, there is also a risk of not having enough assets or money to provide you with the lifestyle you desire in retirement. Therefore, if you try to avoid investment risk altogether, you may have to save more for your retirement.

How do I manage risk and return?

Diversification can help you manage the risks of your investment.

Diversifying or spreading your investments across a range of individual assets, asset classes, countries or investment managers has the potential to smooth out any ups and downs in investment returns, as it is unlikely that all asset classes will have negative returns at the same time.

How much risk should I take on?

Your tolerance to risk is an important factor to consider before making your investment choice. Everyone has a different tolerance to risk, and you need to be comfortable with the level of risk that is associated with the investment option or mix of investment options that you choose.

You can use our risk profile questionnaire to find out what type of investor you are, or seek advice from a qualified financial planner.

You should also consider your investment timeframe. This is the length of time before you will want to access your investment. It is generally accepted that the longer your investment timeframe, the more risk you can afford to take.

The risk/return profile of each of our investment options is determined by the percentage allocated to growth assets relative to defensive assets. The greater the proportion of growth assets, the riskier the investment becomes and the greater the potential return in the long-term.