24 March 2023
With rising cost of living expenses top of everybody’s minds, a common question we get from our members is, should they also be considering changes to their superannuation investment options to keep up to date with market changes?
If you’re wondering that, you’re not alone.
During the first half of 2022, more than one in ten Australians switched their super to a more conservative risk profile, according to a nationally representative survey of 722 Australians by Finder¹, while eight percent of Australians switched their super to a more aggressive risk profile.
Brighter Super Head of Advice Steven O’Donoghue said this was a natural human response.
“When there is turbulence and change in the world, more risk-tolerant members may see the opportunity to maximise returns, while risk-adverse members may see potential loss and move to minimise this,” Mr O’Donoghue said.
There is some evidence to suggest that younger superannuation members are more risk tolerant, being younger and with lower balances, while older members are naturally more conservative which may also play into the changing of profiles. However, the survey also found that one in four millennials changed to a more conservative profile in the last six months in response to the market or personal preference.
What is evident from this survey is that the 80/20 principle applies: roughly 80% of members don’t react to short term market forces, and around 20% may be tempted to. From those who are moving, more than half are choosing conservative portfolios.
So, is changing to conservative investing the way to go right now?
“Not necessarily,” said Mr O’Donoghue, “the truth is moving a superannuation investment around in response to the market is generally not going to get you to your retirement dreams a whole lot faster or with significantly more cash. The product is designed to work over the long term, to build consistently and move and recover with the market.”
How does MySuper work over the long term?
“The default MySuper investment is designed to do this at the lowest possible fees as well, which adds to the overall retirement pot. Staying in one fund also allows your super balance to benefit from compounding from the investment returns generated on the returns you’ve already earned with your fund. This is a case where the 80% are probably making the right decision to stay put and wait for the market.”
What are other portfolio options?
“We do offer lower and higher risk options outside of our default MySuper option for our members if this makes sense for their journey to retirement. Lower risk portfolios come with lower fees and more stability whereas higher risk portfolios come with higher fees but the upside of possible higher returns.
“Risk is such a personal decision, and every member should try to get a good understanding of what their risk appetite is before making a change to their superannuation investment. The real trick is not to move it around too much which incurs fees and reduces your compound growth. Make a decision and stick with it over the long term.
“A common hinderance we find when it comes to choosing what super option to invest in is that they don’t know the specifics they need from a fund. To invest well, you need to find investments that fit your financial goals, investing time frame and risk tolerance,” Mr O’Donoghue said.
Before you move or select your super investment option, try out the investment risk profile tool and choose a long-term plan that works for you, or get in touch at 1800 444 396 and receive limited advice on a single issue related to super, at no additional cost.
¹Finder survey of 722 Australian super members, July 2022 https://www.finder.com.au/super-customers-changing-risk-profile-2022
This article has been produced by LGIAsuper Trustee (ABN 94 085 088 484, AFSL 230511) as trustee for LGIAsuper (ABN 23 053 121 564) trading as Brighter Super and may contain general advice, which has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider the appropriateness of the advice to your objectives, financial situation and needs before acting on the advice. You should also obtain and consider the Product Disclosure Statement (PDS) for your account before making any decision to acquire or contribute additional amounts to your LGIAsuper account – available to download at https://brightersuper.com.au/pds or call us on 1800 444 396 to request a copy. References to Brighter Super may refer to the Trustee or LGIAsuper as the context requires. Brighter Super products are issued by the Trustee on behalf of LGIAsuper.
This article contains information that is up to date at the time of publishing. Some of the information may change following its release. Any questions can be referred to Brighter Super by calling us on 1800 444 396 or by emailing us at firstname.lastname@example.org.