Security Tomorrow Begins With Decisions You Make Today
The purpose of superannuation is to provide for your retirement. Even though retirement may be far away, the decisions you make today regarding the amount you contribute to the Plan, and the investment options you select, will impact on your retirement income.
All investors have to accept some degree of investment risk because returns and the value of investments will go up or down. Different people are comfortable with different levels of risk. The level that you are comfortable with will depend on:
Investors who are willing to take some risk tend to earn higher returns over the long-term, but have greater potential for loss over the short-term.
The question is how much risk is appropriate for you? The most important consideration in determining the level of risk and return you feel comfortable with is your investment time horizon.
To measure risk, we've used the super industry's Standard Risk Measure (SRM). This allows members to compare investment options that are expected to deliver a similar number of negative annual returns over any 20 year period.
The SRM is not a complete assessment of all forms of investment risk. For instance, it doesn't show the potential size of a negative return or the potential for a positive return to be less than a member needs. In addition, it doesn't take into account the impact of Administration Fees and tax on the likelihood of a negative return.
You should still ensure you're comfortable with the risks and potential losses associated with your chosen investment option(s).
The SRM places the expected frequency of negative returns over a 20 year period into one of seven risk bands and risk labels as shown below.
For example, if the risk is "low" the option would be expected to experience one or less years of negative returns over any 20 year period.
The Standard Risk Measure for each option has been calculated by our investment advisers, PricewaterhouseCoopers. This model they have used takes into account current market conditions, correlations between asset classes and forward-looking longer term investment conditions.
Based on this information the model generates forward-looking simulations with a range of possible outcomes. It then determines the probability of a negative return in one year from these possible outcomes. This is then multiplied to find the probability of negative annual returns over 20 years for each investment option, resulting in the SRM labels as shown below.
* The calculation of the SRM follows the recommended calculation methodology outlined by the Association of Superannuation Funds of Australia (ASFA) and the Financial Services Council (FSC) in their Guidance Paper for Trustees dated July 2011. The calculations take into account active Investment Management Fees for each option, but do not take into account Administration Fees or tax.
The time horizon on your investment will change throughout your life.
Close to retirement, an investor may consider an investment choice which is less risky is appropriate, and trade off higher potential returns for the safety of maintaining the capital value of their investment. An investor in this situation would be regarded as having a low risk profile and a short-term horizon, and, typically, would invest primarily in fixed interest securities and cash.
If the investor's retirement date is still years in the future, he/she may not be concerned about month-to-month or even year-to-year variations in returns. A more traditional investment option with a higher proportion of growth assets, such as shares and property, may well be appropriate. An investor in this situation would be regarded as having a high risk profile, seeking higher returns, over a long-term time horizon.
You can choose from four investment options. You can select one option, or any combination of the four options, for your account.
When looking at investment returns and the various options available, you should remember that past performance is not an indicator of future performance. Investment returns are volatile and may go up and down, sometimes quickly.
You can change your investment options any time.
Please seek financial advice when making investment decisions.
Please read the Product Disclosure Statement for further details.
The Share option is a portfolio of listed shares in both Australian and overseas companies. Around 60% of the portfolio is invested in listed Australian companies, with the remainder in listed overseas companies. 50% of the Share Option's exposure to overseas equity is hedged.
Over the longer term it is expected that the Share Option will produce the highest returns but will have the greatest volatility. It is not uncommon for shares to have negative returns (i.e. losses) in any one year.
The Growth option is a diversified portfolio of company shares (both domestic and overseas), fixed interest investments, property and cash. The majority of the assets (around 70%) are invested in company shares (listed Australian and international companies) and property. The balance of the assets (around 30%) are invested in fixed interest securities and cash.
The returns from the equity and property assets can be quite volatile and it is possible that this option will deliver negative returns over any one year. It would suit a member with a longer term investment horizon.
The Conservative option is also a diversified portfolio consisting of very similar assets to Growth funds outlined above, with the main difference being that they have a lower proportion in shares and property (around 30%) and a higher proportion in fixed interest and cash (70%). Over time, the Conservative option is likely to deliver lower returns than the Growth option, but with much less volatility. It has a lower likelihood of negative returns in any one year.
The Cash option is a portfolio of fixed interest securities (including Commonwealth bonds and corporate fixed interest securities) and cash. Stable returns at a relatively modest level are expected with minimal downside risk. It is possible for this option to have a negative return over a short period.