Latest News

This month we have asked our financial planning partner Industry Funds Financial Planning (IFFP) to discuss how to choose where to invest your super savings.

We’ve all heard the story about not putting all your eggs in one basket. This well-known adage reflects the concept of safety in diversification, spreading around the risks inherent in any investments. This is a great starting point for investing.

But what’s also important is working out which baskets to place your money into. There are so many investment options and it can be difficult to know how to choose the right ones.

To explore this from another angle, let’s say you are setting up a stall for the local school fete. It’s a springtime event and your stall is permitted to sell two items. You’ve narrowed the options down to ice creams, hot dogs, coffee and frozen lemonade.

Which ones would you choose? Whichever way you go, you can probably guess that the weather on the day will have a big impact on how much you can sell.

With this in mind, choosing, say, ice creams and coffee, might give you a good chance of having a busy day, regardless of the weather conditions.

If a very hot day is forecast, ice-cream and frozen lemonade may maximise the return from your stall. If a sudden cold snap strikes, hot-dogs and hot coffee would more likely be in demand.

It’s the same with investing. Remember that diversification is not just about throwing your money around haphazardly into as many baskets as you can find in order to spread your risk. In the above example, ice creams and hot coffee will do well in different conditions, and different types of investments will likewise do well at different times in the economic cycle.

How much in each basket?

Most investment opportunities can be split broadly into five main areas or “asset classes”:

• Shares or equities (managed funds and direct share holdings)
• Property (the family home, investment properties or property funds)
• Fixed interest (bonds)
• Cash
• Alternative investments (ie. infrastructure - transport, telecommunications and utilities)

When it comes to superannuation, most of us have a combination of each of these asset classes in our individual member account. If you haven’t made an active investment choice with your super, you will most likely be in the “Default Option”.

This will usually include a pre-mixed combination of differing assets, including local and international shares and property, fixed interest or cash and infrastructure or private equity investments.

This is how your fund trustee diversifies your overall investment portfolio within a fund to reduce risk and maximise your returns. The diversification principles (not keeping all your eggs in one basket) should also apply when you are considering investment options outside of super.

For example, we know that cash is generally a less risky, stable investment when compared with shares. Therefore if you are a conservative investor, or have a short timeframe before you need to draw out your funds, you are likely to prefer a much higher portion of your money in cash through savings accounts or term deposits.

On the other hand, if you are comfortable with higher risk and direct exposure to markets, there are additional options. If you have the investment horizon to wait through the inevitable market cycles, there are options available in a managed fund or other pooled investments. If your tolerance for risk is even higher, then you may consider direct investment in a single company.

Ultimately, your investment portfolio needs to be tailored to your personal circumstances and goals. Speak to your financial planner for assistance or contact your super fund to learn more about the superannuation investment options and develop a comprehensive investment portfolio as part of planning for the future.

What is an Investment Portfolio?

Your Investment Portfolio simply refers to where your total financial wealth is situated.

On what assets does your future financial wellbeing depend?

For many people, the main aspects of a portfolio will be their home (property), their superannuation benefits and maybe some cash savings or a small parcel of shares.
It’s important to know how much you rely on each of these investments, and how well they are spread around in order to meet your future needs effectively.

Article by Industry Fund Financial Planning (IFFP). IFFP is a division of Industry Fund Services (IFS), ABN 54 007 016 195, AFSL 232514. IFFP operate on a fee-for-service basis and do not accept commissions.