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When you first join your employer superannuation plan you will be invested in the funds default investment option.
Your superannuation fund will have created a MySuper approved default investment option which has either a diversified strategy or lifecycle strategy based on your year of birth. All superannuation funds offer some level of flexibility to tailor your investment allocation based on your instructions.
When considering your investment options it is important to consider your age, investment timeframe, risk and reward profile, past investment experience or by reviewing past performance and understanding the investment options objectives.
In addition to the default option most funds provide a diverse range of investment options with a different mix of growth investments (i.e. shares and property) and defensive investments (i.e. fixed interest and cash). The most common options are Defensive, Moderate, Balanced, Growth or High Growth. In addition a number of funds have included specialist or boutique managers to cater for specific needs (i.e. active manages, index funds and socially responsible management). These investment managers invest into specific asset classes or countries and might use financial instruments to generate returns or reduce risks.
In recent years we have seen a number of superannuation funds add direct investments like term deposits and direct Australian shares to their investment menus, in order to compete with Self-Managed Superannuation Funds (SMSF).
It is very important to be aware that different options have different risks and that you should be conscious of these risks when considering your performance expectations. In addition these options will normally have different ongoing management fees to the default investment option. Past performance has proven that short term volatility is greatly offset by longer periods of consistent growth when it comes to choosing superannuation investment options.
In summary, the investment option you choose will have a significant impact on the quality of life you will enjoy during your retirement.
Chris Chan, Head of Superannuation, T +61 3 8663 6292, E firstname.lastname@example.org