Lydia

The super industry in Australia is actually the fourth largest pool of retirement assets in the world.

(theme music starts)

Ange

Welcome to Super Simple Chats. Rest's very own podcast. We will be speaking to industry experts about all things super. Trying to make it understandable and relatable for everyday Aussies. After all, it's one of the biggest assets you'll ever have.

Ange (V/O)

We're recording this podcast on Gadigal land. We pay our respects to elders past and present.

Any advice you hear on this podcast is general in nature and doesn't take into account your financial situation, needs or objectives. Issued by Retail Employees Superannuation PTY LTD. Before deciding to join or stay, consider the relevant PDS and TMD at rest.com.au/pds.

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Ange

Super can feel like a little bit of a mystery. Especially when you first realise that the money's not just sitting in your account, but it's actually being invested on your behalf. In fact, what you started to realise is that a lot of people think that the world of suits and stock markets can be a little bit complex.

But I'm Ange, and I'm here with my co-host Andy, and we're joined today by Lydia from Rest. And we're going to debunk some of these things and talk a little bit more about the investment basics. So in today's episode we're going to be chatting about what's happening behind the scenes with your super, what investment options are, what asset classes are and how risk and return kind of work together.

Additionally, I think we're also going to talk about the difference between growth and defensive assets. And we're probably going to give you a little bit of a sneak peek into Rest’s investment menu. So thank you for joining us today, Lydia. We're really excited to have you on the show.

Lydia

Ange, Andy, thank you for having me.

Ange

So as we've discussed a lot in previous episodes, this seems to be, come… it just comes up all the time.

A lot of people don't realise that their super is invested. And in fact a lot, a lot of people think that it's just money set aside in like a savings account. But we know that that's not the case. So can you tell us a little bit more about why super is invested?

Lydia

Absolutely. So, it isn't really money, okay. Not in the sense of money that you have in your hand nowadays that you can spend, but it is yours and it's definitely there for your retirement. And when you get to retirement, the idea is that you will then have that money to spend. So, it's there for our members. And the reason it's invested is to hopefully grow it through that super journey until you get to retirement.

By investing it, it gives it the potential to grow over time. And the idea is, that gives you more money in retirement.

Ange

Which sounds good to me.

Lydia

Of course, investments aren't guaranteed. They can go up and they can go down. But over that long term, and if you start investing when you start working, that's a long time until most people retire. The idea is…

Ange

It's like 50 odd years or something.

Lydia

Yeah, yeah. So hopefully you'll end up with a bigger nest egg by the time you get there.

Andy

I feel like this idea of investing has really exploded over the past five, six years. I can't tell if it's… I've turned 30 and all my friends are putting their money into ETFs and stuff like that and telling me to do the same thing or if, you know, there's been, like, new apps that have come onto the scene, right, I can think of one where it just rounds up every dollar that you spend and puts it aside for you.

Super isn't quite the same as that… probably some similarities here and there, but, it does have some parallels in that, you know, you have funds in your account that are being invested on your behalf.

So can you just give us a bit more of a deep dive into how it really works?

Lydia

Of course. So you're right, there are some similarities. You're getting a little bit of money put aside to grow into more over that long term. And when your super is put into a fund like Rest, it's invested on your behalf by a team of investment professionals. So don't worry, you don't need to know everything about an investment process to, to grow that super for your retirement.

Ange

That’s a relief, because I don't know the first thing about it.

Lydia

Look, there's plenty to know and to understand. And you can, you can easily learn more about it if you want to and if you're keen to find out more. So how does it work?

So that money, which isn't money, but that… your contributions, your super savings. They're set aside, and that goes into what we call an investment option.

Ange + Andy

Got it. Right.

Lydia

So, a superannuation investment option or a super investment option, it's just the way that we invest on your behalf to help your funds grow.

Different options have different levels of risk and return. So for example, some of our investment options which might invest more heavily, so have a greater allocation, a larger allocation to shares, equity.

Ange

Yep. So that's a term I understand.

Lydia

Okay, they’re typically higher risk. So they potentially have higher return.

SFX: Record scratch. Video pauses.

V/O:

Hey everyone, Ashley from Rest here.

When we talk about risk it can sometimes mean different things. In this podcast, we mean investment risk – the chance your super returns could go up or down in value more than expected. Sometimes returns can be lower than expected, and in some cases, you might lose money.

Now, back to the pod…

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Lydia

And others might focus on investments that are deemed less risky or more defensive and have a higher weighting to those, and they might be more invested in things like bonds or cash.

Ange

And just to kind of dive a little bit deeper into that. My understanding is that there's some sort of relationship between risk and the amount of time that you have investing. Can you kind of break that down for me a little bit?

Lydia

Absolutely. So, we've got a simple range of options. And the idea here is you can choose from, from that range. Most fund members who come to us will come through their employer and they'll go into, you'll hear the terms default or MySuper. And that's our growth option designed to grow over the retirement journey.

Ange

That’s very aptly named.

Lydia

It is, it is. But of course, if members want to make a choice, they can make a choice. So that's why it's a simple range. It helps you understand. But the idea is the longer you hold those investments, the more potential they have to grow. There's a longer opportunity. So if you want to take more risks because you've got more time for those risks to pay back the expected return, then you can do so.

But you might not want to. You might think differently, or you might not have as long and therefore be more comfortable taking less risk to give you that smoother journey. And it's, it's the trade off.

Ange

Got it.

Andy

Yeah, right. So you've just mentioned growth there, right? The growth option that exists. When I started with Rest, you know, I noticed that immediately I was in a growth option. Do you mind just expanding a little bit on what that invests in?

Lydia

Okay. Good question. So, look our growth option, like all our options, it invests across a huge range of underlying assets. So many, many different individual assets. And that's one of the benefits of investing with a super fund. So your contributions get pooled with all our other members’ contributions. And it means that bigger pool of assets can go and buy more assets, different assets.

Ange

Oh so it's like a collective. So because there's more members and more money in the pot to play with…

Lydia

You get, you also get access to a wider range of investments. Because there's there's more, there's a total pool of assets that's bigger.

Ange

Strength in numbers.

Lydia

That’s the one. So we can talk a bit more about what that means.

Ange

Yeah, that sounds good. I am going to derail us for just a moment, because I did read something that I thought was really, really interesting. So apparently the Australian superannuation industry has a total asset pool worth over 4 trillion, with a, with a T trillion dollars worth of assets right here and globally. Like I just think of that number and like I can't even imagine how many zeros that is. I think it's like nine. I don't know, someone correct me please.

Andy

Twelve zeroes. It was twelve.

Ange

But there's a huge amount of money that's invested. Can you tell us a little bit more about how much of that slice of that pie Rest has, and maybe some of the cool assets that Rest invests in with that money?

Lydia

The super industry in Australia is actually the fourth largest pool of retirement assets in the world.

Ange

That's huge.

Lydia

So, there's a number of super funds available. Rest is one of the largest and we have about $100 billion now under management.

Ange

With a B?

Lydia

With a B.

Ange

Everyone at home listening, that was with a B. That's pretty impressive.

Lydia

The good news though, is when you're that size it gives you size and it gives you scale. And it means you can access great investment opportunities both on the ground in Australia but also worldwide.

Vox pops ----------------

Ange (V/O)

We went and asked everyday Aussies what they thought about this

Sinem

Do you know about how it gets invested?

Person 1

It can either be in, like, I think, like, houses properties or, like, just into a savings account.

Person 2

I'm not really sure.

Sinem

Okay.

Person 3

Don't know. I you know what? Time to review. Time to review. Because I don't actually pay attention to it.

Sinem

Did you pick what investment options you were for each one, or were you in the default investment option?

Person 3

No. A couple I got to pick.

Person 4

I know you got the apps and that, I go and look at my super. I'd go and change and re-adjust and stuff like that. But back then you could also paper. You didn't... I didn't know what was in it, really.

Person 5

I changed supers recently like you could do quizzes and things like that beforehand to work out what was going to be better for you and what was coming in. What was coming out.

Person 6

Sometimes I do the default only. But later on I found that, there's one that sounds more trustworthy. Then I put everything into that one.

End vox pops -----------

Ange

Now I would want to know what are some of those cool assets?

Lydia

Well, the good thing is that those, those assets, and some of them are really interesting, but they're quite often investments that our members couldn't necessarily buy into if they were doing this on their own.

Ange

Got it.

Lydia

So, one of our best-known investments is Quay Quarter Tower or QQT. So that's a property investment. Some of our Sydneysiders might know this. It's a beautiful office building down at Circular Quay.

Ange

That's the pointy one, right, down at Circular Quay? It's gorgeous.

Lydia

Yeah. And QQT has won major international architecture awards, but also some major sustainability awards. Because when it was built, they didn't knock down the old building completely. They actually saved and reused much of the core of that original building and built around it. And that means that…

Ange

It's like a building glow up.

Lydia + Andy + Ange

Yeah.

Lydia

But there's a reason for it. And that's because when you knock down buildings, you actually release carbon into the atmosphere. So by knocking down less, you're able to save a lot of the carbon emissions that would have normally come with knocking down that, that building. That's one of the reasons why the Green Building Council of Australia, actually awarded this a 6 star green Star rating. 

Ange

Well, isn't that a bit of an overachiever? I didn't even know you could have 6 stars, but apparently, you can.

Andy

Yep.

Lydia

That's a tangible asset. That's kind of a built property that you can actually touch and see.

We've spoken earlier about shares and shares or equities. So we also hold those from around the world. And there's some really interesting holdings in our portfolio.

Ange

Tell us more.

Lydia

So just to be clear, these aren’t stock tips, just examples of investments currently in our portfolio. So let’s look at one of them, it’s TSMC.

Ange

Say that five times really fast.

Andy

TSM, TSMN…

Ange

Yeah, didn’t think you could.

Lydia

It's actually the Taiwan Semiconductor Manufacturing Company.

Ange

Still over my head, never heard of it.

Lydia

So, still none the wiser? But if I tell you it's actually a company that makes chips that power a lot of your everyday items that you use. So think phones, think computers, think even cars. So you've heard of companies like Apple and Nvidia?

Ange + Andy

Yes.

Lydia

We may invest in those. But actually this company that we also invest in is behind that modern technology. So, as the use of that technology is growing and the whole world is becoming more digital and AI is having a greater influence on everything that we do, we’re really thinking about this in terms of what we’re investing in. These are just some of the many, many investments we have with it.

Ange

When you say many, like how many?

Lydia

I think it’s something like 2000, maybe something around that, don't quote me.

Ange

That's pretty cool.

Lydia

Because you've got that size and you've got that scale. So there'll be lots of the little tiny, tiny bits, but that diversifies you. So that spreads your risk across a huge range of, of opportunities.

Ange

That's awesome.

Andy

So, asset classes. I've heard of this, I've heard of this phrase. Can you just expand a little bit more on what an asset class would be? Give me a really quick 101.

Lydia

Okay, okay. So look, an asset class is just a fancy technical term for, a group of investments that have similar characteristics. So, behave in, in a similar way.

Andy

Right.

Lydia

Okay. So they tend to behave in a similar way to each other. So we group them into asset classes

Ange

Got it. Okay.

Lydia

You'll hear, often hear us talk about two different types of asset class, so growth assets, and defensive assets.

Ange + Andy

Okay.

Lydia

So I say two. But you can also have some investments that have characteristics that are both growth and defensive. So shares. Shares are considered a growth asset. Cash is considered a more defensive asset. Property has characteristics of the both, so a mid-risk asset is sometimes a term you'll hear.

Andy

Yeah.

Ange

And so what's the difference between growth and defensive?

Lydia

So growth is called growth because it's designed to grow. But in order to grow it's likely to take more risk. So it could grow, but there's a risk it may not grow and maybe even have a negative return. Defensive assets tend to give you more stability. So they may not give you as high a return, but their prices or their values are likely to be more stable over time.

Andy

Yeah.

Ange

I'm just going to unpack that for a second. Why would I want my super to grow more slowly? Like to me, I mean, what would that reason be? I can’t get my head around it.

Lydia

It's a really good question. But when we create our investment options, we're mixing together different blends of growth assets and defensive assets. They combine.

Think of it like baking a cake, putting all the ingredients from, from a recipe into to come out with that cake. That's what we're trying to do with investments.

Ange

Cakes are something I understand. We can talk cakes.

Lydia

Okay. So growth, our growth option is called growth because it will have a tilt towards more growth assets. So I think between 60 and 75% of it will be what we term growth. And that tilt to growth means that, over the long haul, it's got the potential to grow more than an option that is tilted more towards defensive assets. But of course, higher potential returns come with taking on higher risk.

Ange

So if I was to use the cake analogy, it's like mixing or changing the ratios of the ingredients. So if you like your cake more fudgy, you'll increase the amount of cocoa. But if you like your cake more dry, you'll increase the amount of, I don’t know, what is it…. flour. So it depends on what your, your preference is.

Lydia

But all your ingredients are needed to make the cake.

Ange

Make the cake. Yeah.

Lydia

So all, but all investments will carry some risk right, okay.

Ange

So even cash carries some risk.

Lydia

From low to high, different levels of risk. But if you don't have that risk then you also don't have the opportunity for the return. So think of two sides of the same coin.

They come hand in hand. So it's not that risk is something to necessarily be scared of or worried about. It's your personal comfort with how much risk you want to take in order to get a chance of your desired return outcome.

Andy

Yeah, some people like skydiving. Some people like lawn bowls.

Ange

I like skydiving, we're going skydiving after this.

Andy

I like lawn bowls. We can go lawn bowls after sky diving.

Ange

What a shame. (laughing)

Lydia

And look, our members. We talk about what we call the risk-return trade off. And it's exactly that. They're deciding how much of each they're comfortable to take.

Ange

Yep. So some of us will jump out of planes, and some of us will roll balls on a lawn.

Andy

With friends.

Lydia

Generally, investments that have higher, longer term return potential will come with higher risk, over the short term in particular. So the reverse is true as well. The lower risk or the defensive asset classes like cash, typically offer lower longer-term returns. So why would you want it to go more slowly? It's about the journey and the path that you want to take.

Ange

And probably the time as well that you've got left before you retire I assume.

Andy

Yeah. So before I picked up that you said there's different options, right? So I guess there's like higher risk options or less risk options. Most people just fall into the default, I guess, right from the get go. So I'm more curious to know what investment options that Rest does have to choose from. And can I make a choice?

Lydia

Absolutely. Yeah. So Rest has a simple investment menu. We've got nine different options on that menu.

Ange

It's like nine cakes.

Lydia

Like nine cakes.

Ange

A whole patisserie out there.

Andy

Delicious.

Lydia

Like, which cake do you want?

The idea is that each of those will have different risk and return profiles. So you can choose between those. Think of it as the nine cakes. Hopefully there's one in there that you might like.

Ange

I’m going to be thinking about cakes after this. Oh, God.

Lydia

So you've heard us talk about the growth option, the default. But there's other options. So another one we've got is sustainable growth. So if you want an option that has a higher allocation to growth assets, sustainable growth might be suitable for you, particularly if you want your super investments to also come with enhanced environmental, social and governance characteristics.

So if that appeals to you, that's an option that you may wish to choose.

Ange

And if you're like a skydiver like me, what would I be interested in? Do you have any, like super high growth?

Lydia

Probably one of the best ways to learn a little bit more about them is check out the, the online tool that we've got and work out which option suits you as a skydiver, or you as a lawn bowls player.

These tools, they provide general information so it's not personalised to you. It won't take account of your personal objectives, but it'll give you an idea and information on what may be suitable to your needs.

Ange

And just shameless plug, I believe that Rest offers it to its members at no additional cost.

Lydia

It does, it does. Yep.

We've also got a range of tools to help you understand more. So lots of quick, simple, easy videos, articles. You can find those on the, the Rest app. There's a section called learn if you want to go and find out a little bit more. They’re bite sized chunks. You can do as many or as little as you want. If you're interested in finding out more of that information. That's a really good starting point.

Ange

Awesome, we'll put some links in the chat, in the show notes. Yeah.

Andy

Yep. But also in the chat.

Ange

In the show notes, that's what I was trying to say. Yeah. Not the chat. What chat? There's no chat. Maybe there is a chat. We should start a chat.

Andy

We'll put the links in the show notes.

Ange

Thanks, Andy.

Andy

I feel like there's so much more to unpack. I think we've kind of just barely scraped…

Ange

The tip of the iceberg.

Andy

The tip of the iceberg. That's mixing metaphors, but it works for me. But, yeah, barely scraped the surface. And I think there's so much more to get into. And I'd love it if you'd be willing to come back and maybe chat a bit more about different investment options that we have, you know, let's get into it.

Lydia

Thanks, guys. It's been a pleasure, and if I can even just help simplify some of those myths and make it easier for our members to understand what their super's doing on their behalf, and for them to make a choice and be comfortable in the actions and the choices they make. Yep, more than happy. If you just learn a little, it can just help increase that comfort level.

Ange

Well, that was it. That was contractual, right? Like it's on camera now. We’ve got her locked in.

Andy

Locked in. Lydia’s coming back. Yeah yeah yeah yeah.

Ange

Well thank you so much for joining us today Lydia. I thought today's episode was really interesting and I learned a lot myself. So I really appreciate you giving us the time.

Lydia

And a little tip, if you don't actually know what investment option you're in, jump onto the app. Have a look.

Ange

Well, as always, if you liked today's episode, please make sure to leave some comments below like subscribe.

Andy

And that's.

Ange, Andy, Lydia

Super simple.