Superannuation. It’s your nest egg for the future, designed to fund your retirement dreams. But are your super investments working as hard as they should be? The key lies in understanding your risk profile and ensuring your superannuation is invested in a way that aligns with your individual circumstances and goals.
What is a risk profile?
Your risk profile is essentially your comfort level with investment risk. It takes into account your:
- Investment timeframe: How long do you have until you need to access your money?
- Financial goals: What are you hoping to achieve with your investments?
- Personality: Are you a cautious investor or a thrill-seeker?
- Capacity for loss: How much money can you afford to lose without impacting your lifestyle?
Why does it matter for super?
Your risk profile plays a crucial role in determining how your superannuation should be invested.
- Higher risk, higher potential return: If you have a longer time horizon and a higher risk tolerance, you might invest a larger portion of your super in growth assets like shares and property. These assets have the potential for higher returns over the long term, but they also come with greater volatility.
- Lower risk, lower potential return: If you’re closer to retirement or have a lower risk tolerance, you might prefer a more conservative approach, with a larger allocation to defensive assets like cash and fixed interest. These assets offer lower potential returns but are generally less volatile.
Finding your risk profile
Many super funds offer online questionnaires or tools to help you assess your risk profile. These questionnaires typically ask about your:
- Investment knowledge and experience
- Comfort level with market fluctuations
- Time horizon
- Financial goals
Common risk profiles:
- Conservative: Prefers low-risk investments with stable returns, even if it means lower growth potential.
- Moderately conservative: Seeks a balance of capital preservation and moderate growth.
- Balanced: Comfortable with a mix of growth and defensive assets.
- Growth: Seeks higher returns and is willing to accept greater risk and volatility.
- High Growth: Focuses primarily on growth assets and is comfortable with significant market fluctuations.
Matching your risk profile to your super investments
Once you understand your risk profile, you can choose a super investment option that aligns with your needs. Most super funds offer a range of investment options, such as:
- Capital Guaranteed: Offers low risk and stable returns, but with limited growth potential.
- Conservative: Invests primarily in defensive assets like cash and fixed interest.
- Balanced: A mix of growth and defensive assets.
- Growth: Focuses on growth assets like shares and property.
- High Growth: A higher proportion of growth assets for those seeking higher returns and accepting higher risk.
Don’t set and forget!
Your risk profile can change over time due to factors like age, financial circumstances, and market conditions. It’s important to review your risk profile and super investments regularly to ensure they remain aligned.
Seek professional advice
A financial advisor can help you assess your risk profile, understand your investment options, and choose a super investment strategy that’s right for you.
Finding the right balance
By understanding your risk profile and investing your super accordingly, you can increase your potential for long-term growth while managing risk effectively.
This blog post is intended for general information purposes only and does not constitute financial advice. It is essential to seek personalised advice from a qualified financial advisor to ensure the information is appropriate to your individual circumstances.
