How to get the right investment mix in your super

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A mix-and-match approach can deliver the ideal blend of investments - and turbo-charged returns - for your super.

As an ultra-long term investment, one of the great strengths of superannuation is the ability for us to earn supersized compounding returns.

But the extent to which we benefit from compounding can hinge on how our super is invested in the first place.

How to get the right investment mix in your super

To see how your choice of investments can impact your retirement savings, let's take a look at three simple scenarios.

We'll use the example of Anna, a hypothetical 20-something, who has just started in the workforce on a salary of $40,000:

1. A conservative approach

If Anna opts for a 'capital stable', or conservative investment option for her super, she can expect annual returns averaging around 4.4% according to figures from SuperRatings.

If she relies solely on her boss's super contributions, by age 67 Anna's super may have grown to be worth around $195,888.

2. Ramping up returns with a balanced strategy

If Anna ramps up her risk with a balanced investment option providing more exposure to shares, her super is likely to earn annual returns of about 7.0%.

In this case, Anna's super savings would likely be worth about $374,993 when she retires at 67.

3. Turbo-charging returns with a growth option

Alternatively, Anna could go for a 'growth' investment option with a high proportion of her super invested in shares.

Based on the past 10-year returns, Anna's super can be expected to earn annual returns in the order of 8.2%.

The higher return would see her accumulated super amount to around $521,005 by age 67.

There is no magic to these calculations.

They were made using the Superannuation Calculator on the Moneysmart website, which anyone can access.

The real magic lies in the way small increments in investment returns can turbocharge our super savings over time.

Why not just go for growth?

Looking at Anna's example, it'd be easy to think a growth investment option is the way to go for your super.

Growth assets like shares can certainly deliver high returns over time.

The catch is that they can also experience extreme falls in value over short periods.

This volatility isn't a problem if retirement is a long way off. Markets recover, and so will your super.

It's when you're about to retire that a market tumble can deal a nasty blow to retirement savings.

Fortunately, most of us can mix and match our investment options. It's a way of personalising our super to suit our goals and life stage.

Super funds offer choice

Plenty of super funds offer a feast of investment options.

Aware Super, for example, has a menu of 15 different choices.

Funds such as Australian Retirement Trust include socially responsible investment options.

What matters is that most of us can mix and match options to find the combo of investments that we are truly comfortable with.

Deciding the investment blend that's right for you

A few tips here can help:

  • Check the fees - more complex investments can come with higher fees.
  • Know how you feel about risk - understand how you feel about risk especially as you approach retirement. A growth option can feel great when sharemarkets are soaring. It's not so much fun when markets tank.
  • You don't have to choose - picking investment options can be stressful. MySuper accounts can come with a lifecycle strategy that sees the underlying investments change automatically as you age.

Talk to your fund

Your super fund can be a great source of advice.

If you're unsure about investment options for your super, contact your fund's member advice service. It shouldn't cost anything as the cost of advice is built into fund fees.

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A former Chartered Accountant, Nicola Field has been a regular contributor to Money for 20 years, and writes on personal finance issues for some of Australia's largest financial institutions. She is the author of Investing in Your Child's Future and Baby or Bust, and has collaborated with Paul Clitheroe on a variety of projects including radio scripts, newspaper columns, and several books.