Guide to making an investment choice 

Investments come with risks

All investments, including superannuation, are subject to risk. There is a 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.

One component of investment risk is market risk. This is the risk of adverse movements within an investment market due to factors such as economic conditions, government policies, changes in the level of interest rates and inflation, technological developments, and demographic changes which in turn can adversely affect the value of your investments. These movements have been typical in investment markets during 2007/08.

Understand your risk profile

Where members are unable or unwilling to tolerate negative movements in their account balance over short time periods due to investment volatility, then they are generally considered to be risk averse, and the investment behaviour of defensive assets (eg fixed interest and cash) is likely to be more in line with the member’s expectations.

Where members can tolerate negative movements in their account balance due to investment volatility, but seek a higher average return over the longer term, they are generally considered to be risk tolerant, and the short term variability of investment returns from potentially large negative through to large positive investment returns which are earned on growth assets (eg shares or property) is likely to be more in line with the member’s expectations.

This trade off between sensitivity to short-term negative returns versus the desire to earn higher average returns over time is called the member’s risk/return profile.

Set 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.

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.

By diversifying investments across a number of different asset classes, members can reduce the impact that a poor performance in one particular asset class will have on a member’s overall investment.

First State Super allows members to achieve diversification by investing in either the pre-mixed investment strategies or by investing in a number of single asset class investment strategies. The single asset class investment strategies are for those members who wish to more actively manage their investment. Members who invest in these single asset class strategies should understand that there is additional investment risk to the value of their investment in the Fund as they may not be adequately diversifying their investment.

Choosing an investment strategy Fact sheet 4 (PDF 452 kb) lists the investment objectives, risk profile, investment time horizon and suitability for members for the 10 investment strategies offered by the Fund.

* Past performance is no indicator or guarantee of future performance. The value of investments can rise or fall.