Investment risk and return.
Want to get to know your super investment options but not quite sure where to start? Here you’ll find a few basics on the whole risk and return thing, and the lowdown on how to figure out which Virgin Super investment option best fits your style, or as it’s known in the industry, your ‘ investment timeframe’.
How super contributions are invested.
When super contributions are made, those dollars are used to buy a range of investment units in asset classes such as shares, property or cash. Virgin Super’s investment approach is called index tracking. In short, indexing helps individual investors share in the overall market’s performance.
Virgin Super members can invest in one or many of these asset classes.
| Australian shares | Investments in Australian companies, usually listed on the Australian Stock Exchange (ASX). |
| International shares | Investments in overseas companies. |
| Property | An investment in property or developments, either directly or through property trusts. |
| Fixed interest | Usually a loan to a government or business where a fixed rate and loan length are agreed to in advance. |
| Cash | Deposits in a bank, short-term loan securities and other similar investments. |
Understanding investment risk and returns.
Some assets carry a higher form of investment risk than others, and are known as growth assets (e.g. shares). Those that are more stable are called defensive assets (e.g. cash and fixed interest).
If your super investment carries a higher level of risk, it means you have the potential to nab juicy returns over the long term. In the short term, it’s important to note that high risk investors may experience negative returns - generally between one and five years.
When considering your attitude to risk, it comes down to how much time you have before you need the cash. This is known as your investment timeframe.
Asset classes and levels of risk.
| Australian shares | The expected return is high, but the risk is greater. | 5 years (+) investment timeframe |
| International shares | Similar to Australian shares. Generally the expected return is high over the long term but the risk is greater. | 5 years (+) investment timeframe |
| Property | Moderate to high risk investment, due to reliance on economic factors, location and quality. Has a corresponding level of moderate to high returns. | 5 years (+) investment timeframe |
| Fixed interest | Moderate risk investment. Less volatile than property and shares over the short term, but also provides a lower level of return. | 1-3 year investment timeframe |
| Cash | Lowest risk with a corresponding expectation of low returns. | 1-3 year investment timeframe |
How to figure out the right super option for you.
It’s up to you to figure out what’s going to work best, based on the degree of risk you’re most comfortable with and the level of involvement you’re up for.
People getting closer to retirement may be less tolerant to risk. That’s because it’s likely they’ve got more cash in their super fund and less time to recover short-term losses.
On the flip side, younger people generally have a longer investment timeframe. This means they can invest more comfortably in growth assets and therefore maximise the potential for juicy returns.
With Virgin Super, you can do one of two things:
Do it yourself – you can choose the mix that’s right for you, based on the level of risk you want.
Have us handle it for you – as you get older, your investment mix is reduced by changing your dollar allocation from growth assets (shares and property) to defensive assets (cash and fixed interest).