Investment options and risk profiles
When working out your risk profile, it’s important to note that “risky” assets like shares have prices that may fluctuate heavily in the short term. Over the long term (like investing in super), the impact of these short term movements could even out. This means that when we talk about risk for investing in super, we need to look at how long you have before you retire.
This is why younger people often invest in options that have a higher proportion of growth assets, because the short term fluctuations and risk won’t have as much impact on the final balance as they might for a 60 year old, because the balance has more time to recover. As a result, it’s important to work out your level of risk tolerance before investing.
What’s right for you
To support you in making this decision, here are five things to consider:
- How comfortable you are with risk? Are you keen to ride the waves of market volatility, or do you feel more comfortable with a ‘slow and steady’ approach?
- How close to retirement you are? As mentioned, the further away you are from retirement, the higher the risk you may be able to take, as you could weather any short-term market fluctuations. If retirement is around the corner, you might want to be more conservative to reduce the risk of your balance going down just before you stop working.
- Your retirement saving goals Knowing whether your super balance is on track for the future, or in need of a boost, may influence how much risk you’re willing to take.
- Your values. You may be able to choose investment options that are more tailored to your values, like sustainability, or supporting Australian-owned businesses.
- How hands-on you want to be when managing your super. Do you want to take control and actively explore different investment mixes, or make a choice and check in on your progress?