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Share markets and super: Four things to consider if your super balance falls

From time to time, market movements may cause your super balance to fall. While this can be alarming, you'll find that it usually recovers in due course. However, if you feel like you need to make some adjustments to your super, here are four things to think about first.

1. Consider how comfortable you are with risk

Almost every type of investment carries some level of risk. Generally speaking, the greater the risk, the higher the potential returns.

Your super is usually made up of different kinds of investments (called asset classes) and they all have different levels of risk:

The most common asset classes are: 

 

  • Shares (also known as equities). Shares give you part ownership of an Australian or international company and earn dividends through capital growth. Shares are generally considered a higher-risk asset because they’re susceptible to market fluctuations, but they can also provide higher returns over the long term.
  • Property securities. Property securities are common in super portfolios. Rather than investing in direct property, property securities invest in commercial, retail and industrial property holdings via the share market. They’re considered a higher-risk asset with high potential returns over the long term.
  • Fixed interest. The most common types of fixed interest investments are bonds. They’re issued by governments and large corporations when they want to raise money – for example, to fund a government or business initiative. They typically pay regular interest over a fixed term – anywhere between one and thirty years. Bonds are considered low risk, low return investments. 
  • Cash. This can include money held in short and medium-term investments that earn interest, such as term deposits, bank bills and treasury notes. Their value is impacted by changes to the interest rate. These types of investments are considered very low risk because their returns are generally low but stable.

 

The higher your allocation to riskier investments, such as shares and property securities, the more likely it is that you’ll experience market volatility – and this will be reflected in your super balance. You’ll also have the potential to receive higher returns over the long term.

On the other hand, if your super portfolio has a higher allocation to low-risk investments, like cash and fixed interest, you’ll probably experience less market volatility and therefore less fluctuations in your super balance. However, you’ll most likely receive lower returns over the long term.

Everyone is different and you need to decide how much risk you’re willing to accept in your super. This might change through-out your lifetime. For example, you might find that you’re less comfortable with risk as you approach retirement, because you have less time for your super to recover from short-term fluctuations.  

2. Diversify your super

One of the ways to lower the overall risk in your super is to invest your super across several asset classes (an investment strategy known as diversification). This is because every market moves in its own cycles, and no matter what type of investments you have in your super it’s likely that they’ll experience a downturn at some point. 

Each type of investment can perform differently under the same market conditions – so when the value of one falls, another may go up. While there are no guarantees that diversification will fully protect you against loss, spreading your investments across a range of asset classes can help balance out the overall levels of risk and return in your portfolio.

3. Check that your investment strategy is appropriate

Your investment strategy and risk profile (how comfortable you are with risk) go hand in hand. Your financial goals and investing timeframe should also be considered as part of your strategy.

Here are some different investment strategies and you may come across in super and Colonial First State:

 

  • Growth. Around 80% allocation to growth assets like shares and property securities, with an investment timeframe of 5 years or more.
  • Balanced. Around 70% allocation to growth assets like shares and property securities, with an investment timeframe of 5 years or more.
  • Moderate. Around 60% allocation to growth assets like shares and property securities, with an investment timeframe of 5 years or more.
  • Diversified. Around 50% allocation to growth assets like shares and property securities, and 50% allocation to defensive assets like fixed interest and cash, with an investment timeframe of 5 years or more.
  • Conservative. Around 70% allocation to defensive assets like fixed interest and cash, with an investment timeframe of 3 years or more.

 

Another common investment strategy is ethical or responsible investing. This involves choosing investments that align with your personal moral or ethical views relating to factors such as people, society and the environment. 

Whatever type of investment strategy you chose, it shouldn’t be something you set and forget. It’s worth revisiting your investment strategy from time to time – and not just when markets move significantly – to make sure it’s appropriate for where you are right now. That way, you’ll be better prepared if markets do become volatile.

4. Speak to a financial adviser

If after reviewing your risk profile, diversification and investment strategy you still feel like you need to make some change to your super, the best thing to do is speak to a financial adviser. 

They can help you work out what’s best for you and your super, based on where you are in life and what you want to achieve. A financial adviser will also help monitor your investments through periods of market volatility and make adjustments if necessary, so you can feel confident that you’re still on track to meet your financial goals. If you’d like to talk to someone, you can use our online tool to connect with a financial adviser near you.

We’re here to help

The Colonial First State Investments team is working hard to make sure you have the support you need. We will continue to monitor markets, share regular market updates, and communicate closely with our network of experienced investment managers.

As you keep your long-term goals top of mind, remember: our team is here to help – with news, insights and helpful resources available on our website to help keep you up-to-date.

Disclaimer

Information on this webpage is provided by Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) and Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL). It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the Target Market Determinations (TMD) for our financial products at www.cfs.com.au/tmd, which include a description of who a financial product might suit. You should read the Financial Services Guide (FSG) available online for information about our services. This information is based on current requirements and laws as at the date of publication.

Tax considerations are general and based on present tax laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.

AIL and CFSIL are not registered tax (financial) advisers under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise under a tax law.