How investment risk affects super fund returns | Prime Super

If you have super … good news, you’re an investor! 

As an investor there are a few things you’ll need to understand, such as ​​investment ​​​risk​ and​ potential ​super fund​​​ returns​. 

Any form of investing carries a certain level of risk. Superannuation is a ​long-term investment​, and most investments will experience market movement, including both unexpected highs and lows. Investments with higher risk generally achieve a higher rate of return, while investments with lower risk generally achieve a lower rate of return over the long term.  

Prime Super has several ​​​super​​​​ ​​​​investment options​ that cater to the level of risk you are willing to take as well as the return expectations that you have. 

Everybody is unique and super investments should reflect personal preferences in relation to ​​investment ​​​risk​ and ​​super fund ​​​return​​​s​​. 

Typically, the longer the investment time frame (or the younger you are), the more time you have to ride out the volatility that naturally comes with a market cycle. However, not everyone is comfortable with higher levels of risk, even if they have a longer investment time frame. How you feel about ​investment risk​ may also change over time. Therefore, it’s important to evaluate your investments on a regular basis​ and consider changing super funds as needed​.  

Understanding an investment option

Each Prime Super investment option will have five key attributes that can help you form a decision if on whether it’s right for you.

1. Suitability: refers to the type of investor that we think the option is generally suitable for.

2. Investment objective: what the option is trying to achieve. For example, the option may aim to outperform the Consumer Price Index (CPI) by a percentage over a period of time.

3. Time horizon: the suggested investment timeframe for the option to achieve its objective. 

4. Investment style: explains if the option is more focused on defensive or growth assets. These terms are defined below.

5. Risk level: explains the risk associated with the option​, with your choice between​​ high risk investments and low risk investments.

Defensive or growth assets 

Investment assets can be divided into two broad categories: defensive or growth assets. 

Defensive assets are ​​lower risk ​​​investments​ that are generally less volatile in the face of market volatility. The lower the risk of the investment, the higher the investment in defensive assets. Prime Super’s Fixed Interest and Cash options have 100% defensive asset investments. 

Growth assets are generally expected to increase in value over time, offering high potential ​​super fund ​​​return​​​s​​, but also higher risk and volatility. Typically, these​ ​​​high risk ​​​investments​ are taken over the long term and are more suited to investors willing to ride out market fluctuations. Prime Super’s Australian Shares and International Shares options have 100% growth asset investments. 

We’ll explore ​two​ hypothetical scenarios, elaborating the association between time and investments. 

Monica, a 23-year-old Prime Super member​,​ is a Marketing Coordinator. She opened her Prime Super account when she started work a year ago and initially invested in the default MySuper option. It’s important to remember that your superannuation is for the long term. With more than 40 years until retirement, Monica has time on her side and may consider adjusting her investment mix to suit her risk tolerance.

For example, she could diversify by allocating a portion of her super to higher or lower risk options, depending on her goals. For instance, allocating more to Cash may reduce short-term volatility, while investing in shares may offer higher growth potential over the long term – though with greater risk. It’s important to remember that all investments carry some level of risk, and past performance is not a reliable indicator of future returns. 

For illustration purposes only. 

Liz is approaching retirement and has reduced her working hours. At age 60, she’s opened a Transition To Retirement (TTR) account, allowing her to draw from her super to supplement her income. While some members in Liz’s position may consider switching to lower risk investment options, it’s important to remember that retirement can span several decades.

Even in retirement, super remains a long-term investment. Members nearing retirement may explore a mix of investment options — for example, combining a Balanced option with a more growth-oriented option —depending on their risk tolerance and income needs. 

For illustration purposes only.  

Which investment profile best suits you?  

Choosing the options you invest in could make a difference to how much you will have in retirement. Everyone’s situation is unique, so your super investment option/s should reflect your personal preferences around risk and return​, as well as your anticipated future needs – which you can explore using our retirement needs calculator​. To understand more about investing with Prime Super, we recommend booking a chat with a super specialist at https://www.primesuper.com.au/member/book-a-chat/.  

This article is current at the date of publication and is subject to change. It contains general information only and does not take into account of your specific objectives, financial situation, needs or personal circumstances. You should seek personal advice or professional financial advice, consider your own circumstances and read our Product Disclosure Statement (PDS) before making a decision about Prime Super. A copy of the PDS and Target Market Determination is available by calling 1800 675 839 or visiting primesuper.com.au/pds.  

Prime Super Pty Ltd ABN 81 067 241 016 AFSL 219723 RSE L0000277 is the Trustee of Prime Super ABN 60 562 335 823 RN 1000276.