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The role of investment returns in your financial future

Wondering how your superannuation balance grows?

Superannuation has been helping Australians save for retirement for nearly four decades. But while it helps you save for the future, it’s not like a savings account. In fact, your super works differently, and relies on more than just contributions to grow. Here, we explain the role of investment returns.

Why is super invested?

While a savings account can grow slowly over time through regular deposits and a bit of interest, your super grows not only through regular employer contributions, but by investing those funds into a diversified portfolio of assets – with the aim of generating returns that increase the amount of savings you have for retirement and help safeguard the value of your nest egg against the erosive impacts of inflation.

Where do returns come from?

Depending on the composition of investments in your fund’s portfolio, the investment returns that help grow your super balance could come from a variety of places. For example:


This is a growth asset class and is an investment on the higher end of the risk spectrum. That’s because share markets fluctuate regularly and are influenced by a range of different factors, from politics to economic developments, pandemics and even the weather – anything that could have an impact on the operating environment of companies listed on share markets. But shares also have the potential to deliver higher investment returns over the long term, as the growth trend for shares has generally been higher over time. Returns are normally derived from capital gains (that is, the value of shares rises) or dividends (which is a share of the profit that a company makes and distributes to investors).


Property can also be considered a higher-risk investment in exchange for potentially higher returns over the long term. It can be listed, unlisted and directly owned (with your name on the title). Returns for both listed (accessed indirectly through a real estate investment trust listed on the share market) and unlisted property (held indirectly through a privately managed property fund or trust that is not listed on the share market) can come from rental yield, which the fund pays to investors as dividends. Returns from directly owned assets (like a rental property) can come from rent that is paid each week. Listed property investments can typically be bought and sold at any time, but carry risk in that share markets often fluctuate and can experience volatility. Unlisted property investments, while not exposed to share market fluctuations, can carry risk in that some investments may be locked in for a fixed period of time. And directly owned property investments can carry risk if, for example, tenants are unable to make rental payments.

Fixed interest

The most common kinds of fixed interest investments are government and corporate bonds, which can offer a degree of stability – but which, over the long term, also offer lower potential returns compared to growth investments. Returns from bonds come from periodic interest payments from bond issuers as well as the full repayment of the capital you paid for your bonds at the end of their term (which can be many years). Fixed interest investments also have a risk spectrum. Generally, the riskier the investment (for example, corporate bonds), the higher the potential interest payment. Corporate bondholders are also normally paid before shareholders, offering a degree of income certainty. This means bondholders have a higher chance of receiving their investment back in the event of the company being in financial trouble.


In exchange for its stability and relative safety on the risk spectrum, cash typically offers the lowest level of returns over the long term. Depending on the cash option (or account) you choose, returns can come from interest payments paid on the account – often paid over a set term.

Under changing circumstances, all investments perform differently. But by diversifying your investments (and your returns), you can avoid putting all your eggs in one basket and help to protect your super balance when financial markets fluctuate higher and lower over time.

When markets are volatile, can investing still grow your super balance?

It’s natural to feel concern about the impacts that market volatility can have on your investments and super balance. But it can be helpful to remember that financial markets have, can and still do fluctuate for various reasons – meaning investment returns also fluctuate over time. As super is for the long term, your super balance could continue to experience fluctuations – even in retirement.



But while difficult to forecast, history shows us that markets do eventually recover from downturns – for example, in the decade following the Global Financial Crisis, global share markets recovered and delivered returns of roughly 10% per annum to investors. And while past performance is no indicator of future performance, in 2019 alone, Australian and global shares delivered exceptionally strong returns of 24% and 27% respectively. So, depending on your super fund, risk profile and time horizon to retirement, it’s possible that your super balance has benefitted from the returns that financial markets have experienced over time.

Learn more

Colonial First State has been helping Australians with their superannuation, investment and retirement needs for more than 30 years. No matter the circumstance, our team remains dedicated to supporting members – regularly sharing news, insights and helpful resources to assist members on their wealth-creation journeys. Before making any decisions speak to your financial adviser.


Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from or by calling us on 13 13 36. Past performance is no indication of future performance.

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