Super Journey
What is super?
Superannuation is about helping you achieve the type of lifestyle you want in retirement.
Superannuation may:
- help provide you with a financially comfortable and secure retirement
- assist you with long term savings
- allow you to take advantage of favourable tax treatment of superannuation contributions and benefits
- allow you to take advantage of insurance offered through your plan
How is super invested?
Superannuation contributions are usually made by an employer and /or employee into a superannuation fund which is regulated by legislative requirements.
The contributions received are then pooled with the contributions of other members of the fund and invested in different sectors (eg property, cash, fixed interest, equities, etc.) determined by your portfolio choice.
Where do you want to be?
Decisions that you make now may determine your lifestyle choices in retirement.
The importance of portfolio selection
Selecting an appropriate investment portfolio to invest your superannuation in is an important factor in planning for your retirement.
Understanding some basics will assist making the right decision in achieving long term financial security.
Investing principles: time
The length of time you are planning to invest in a portfolio may affect your investment decision.
If you are about to retire or redeem your retirement accumulation, you should perhaps think about investing in a way that involves minimising volatility. That is, making sure there is little chance of the value of your investment fluctuating downwards over the remaining period by choosing an appropriate portfolio.
If your superannuation investment is for the longer term, you can generally afford to involve a greater risk component with the objective of achieving higher investment returns.
Investment principles: effect of inflation
If the expected portfolio return is lower than the inflation rate, the real value of your investment is being eroded.
The amount of a portfolio's return above inflation is called the real rate of return. Any investment providing an average rate of return over 2-3% p.a. over the longer term in excess of inflation is generally thought to be working well for you as it is maintaining its buying power.
Investment principles: risk vs return
A trade-off exists between risk (the degree of security and volatility provided by the portfolio's assets) and the investment return from the portfolios you choose.
Lower risk generally means lower long term returns.
Higher risk generally means potentially higher returns in the longer term, but greater risk of volatility and negative return in the short term.
Investment principles: diversification
The returns from all investment markets are cyclical and reflect changing economic conditions, and in particular, the outlook for inflation and consumer confidence.
It is generally suggested that you consider spreading your investments across a number of different markets (such as equities and fixed interest etc.) at portfolio level. This may assist in reducing the level of risk and volatility associated with investing in a single investment market.
Charter Financial Planning Limited, ABN 35 002 976 294 Australian Services Licensee License No. 234665 is not associated with this provider and is not responsible for advice provided by this provider.
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