How super funds make investments

People stand on a bar graph as they track the performance of their super investments

So, you’ve just landed your first job or you’ve received your super statement and it’s time you made some important decisions around the investment options your chosen fund offers.

After all, how your superannuation is invested and the return that those investments make could have a massive impact on how you live out your retirement years and how much money you’ve got to spend.

There are four main investment types that you might encounter: a growth, balanced, conservative, or ethical approach. With all of these investment options in the mix, you’re probably wondering what all of it really means, and if an investment type will affect your super balance. 

Types of super investment options

A pie chart of different super investment types

Generally speaking, you can choose how much risk you’re willing to take on when it comes to super investments. The amount of risk depends on what your financial needs are, your age, and what will help you achieve your super retirement goals. So, let’s have a look at some pre-mixed investment types available with super funds:

  • Growth fund: High risk, high reward. About 85% of investments will typically go towards riskier endeavours like shares or property with growth options. There might even be the option to exclusively invest in this type of asset, which means you can allocate all of your super into a growth option. This investment style presents an opportunity for some higher returns in the long run, but losses can also be greater in frequency and value when compared to other investment types. Growth options are generally more suitable for Aussies just starting out in their career.  
  • Balanced: A balanced super investment may not reap rewards like a growth option, but it could be a good alternative if you’re looking for something safer and don’t mind returns that are potentially a little lower. Even still, there are generally decent super returns to be found with a balanced fund, and the likelihood of loss is slimmer. This option invests roughly 70% in riskier assets, while the rest is usually invested in assets with a more consistent rate of return, like cash or fixed interest.
  • Conservative: A conservative investment approach tends to be seen as the safest option. This is because, while risk is probably much lower, so is the possibility of a high return. A majority of super investments (approximately 70%) are in safer assets, so it’s generally considered the most stable option and is more popular amongst people nearing retirement age.
  • Ethical: If you’re opposed to investing in certain industries because it goes against your values, you could switch over to an ethical super fund. While risk levels can fall anywhere between conservative and high growth, this type of investment tends to be in assets that meet certain environmental, social, and governance standards. 

Where is super invested?

Overlooking rows of houses as super is invested in sectors like housing

Super providers typically invest in a range of assets on your behalf. It might include assets such as housing, international shares, or even infrastructure like transport, or hospitals.

With ethical super funds however, some investments are potentially more controlled. These funds may, for example, avoid companies that deal in sectors like coal mining or tobacco, and might invest in things like humanitarian charities or renewable energy instead.

You can also choose to invest in specific assets with a self-managed super fund.

Why knowing your super fund investments matter

Two people hunched over their super investments as they focus on growing their super balance

It’s important to keep track of your investments, as the option you select can have a long-term impact on your super balance at retirement. 

For instance, when you’ve been working for decades and are nearing retirement or the preservation age, you might adopt a conservative investment approach to conserve your wealth and build small, but steady returns.

On the other hand, a conservative investment style might not be ideal if you’ve got many years ahead of you before you retire. As you’ll possibly have more time to bounce back from fluctuations in the market, opting for a growth option to gain higher returns could be your preference.

While one super investment option may be more suitable for you than another, you don’t need to have all of it invested in a particular fund - you can have 60% in growth, and 40% in balance, for example. So to inform your decision, you might consider what your super objectives are when choosing an investment type, and read the relevant product disclosure statement to be aware of important details about your investments.

But if you’re still unsure what the right move for you is, you could try speaking with a financial advisor to gain a different perspective and help you work through your options. Many superfunds also have inhouse advisors available for their members (though they may charge a fee for this service).    

Now that you know how super fund investments work, are you ready to expand your super knowledge further? Check out our superannuation guides hub to learn more about the world of super from how to withdraw your superannuation to accessing your super early.