Guide to making an investment choice 

Investments come with risks

All investments, including superannuation, are subject to the risk that the value of the investment may rise or fall and produce a return which is less than you anticipate. Rises and falls in value can occur rapidly and for a variety of reasons.

Understand your risk profile

Where members are unable or unwilling to accept negative movements in their account balance over short time periods due to investment volatility, then they are generally considered to be risk averse. For a risk-averse investor, defensive assets (eg fixed interest and cash) may be the most suitable investments.

Where members are able to accept short-term investment losses in their account balance due to investment volatility, in return for the possibility of higher average long-term returns, then they are generally considered to be risk tolerant. For a risk-tolerant investor, growth assets (eg shares or property) may be more appropriate than defensive assets.

This trade off between short-term losses and higher longer-term gains is called the member’s risk/return profile.

Consider your timeframe

Growth assets tend to be more volatile than defensive assets. However, growth assets historically have offered higher returns over the longer term than defensive assets*. This is why it is important to look at investment earnings over longer periods say 3 and 5 year periods.

Members who are investing only for a few years may desire a low risk/return profile while those who have a number of years to invest may be able to tolerate a higher risk/return profile.

* Past performance is not a reliable indicator or a guarantee of future performance. The value of investments can rise or fall. 

Use diversification to manage investment risk

Generally, members can reduce investment risk by investing across a number of different asset classes .This is called diversification and it can reduce risk by reducing the impact that a poor performance in one particular asset class will have on a member’s overall investment.

First State Super members can diversify their investment automatically by investing in one of our pre-mixed investment options, which hold all the asset classes in various proportions. Members can also invest in our single asset class investment options, but because these options only invest in one particular asset class, members should understand that by investing in a single asset class option, they may not be adequately diversifying investment.

Socially responsible investments

While choosing a socially responsible investment may satisfy your ethical criteria, you should also ensure that it will meet your investment criteria such as your investment timeframe, the amount of risk you are willing to take, and the level of return you anticipate. The Trustee recommends that you consider obtaining financial advice before investing.