Investment basics: Understanding risk

1 November 2023

Deciding how your superannuation should be invested can make a difference to your future lifestyle in retirement.

As we all get older, our decisions around investments tend to change. One of the main reasons is our willingness to accept the risks associated with different investment options can change over time.

Understanding your attitude to risk is important when deciding how you would like your super invested.

What is investment risk?

All investments have different level of risks and returns associated with them. Investment risk can be defined as the chance that an actual return will differ from an expected return.

Your super is a long-term investment, and over time it will be exposed to different levels of risk. Knowing how much risk you are comfortable with can help you achieve your financial goals.

Different risks and return

Generally, investments can be categorised according to risk and potential returns:

• Higher risk investments – can offer potentially higher long-term returns, but there can be short-term fluctuations and negative returns due to short-term market volatility.
• Lower risk investments – are more stable and less likely to fluctuate in value during short-term market volatility, but they tend to offer potentially lower long-term returns.

When choosing an investment option or options, a key factor to consider is the length of time until your retirement.

If your timeframe to retirement is long, market volatility in the short-term would generally have less of an impact, so you may be able to take more risk and potentially receive higher returns over the long term.

If your timeframe to retirement is short, you may need to reduce your risk to avoid the impact of any market volatility, and potentially receive lower returns.

What is your risk tolerance?

The level of risk that you are comfortable with is known as your risk tolerance.

Everyone’s risk tolerance changes over time. Understanding your risk tolerance at your current stage of life can help you choose the best investment option for your super.

While your investment timeframe is a key consideration, two other factors are:

• Your financial goals.
• Your attitude to investment risk versus return.

To learn more, you can read the ‘investment basics’ section in our Investment Choice Guide (page 3) for your account, at brightersuper.com.au/pds-guides.

Try our investment risk profile tool

To learn more about your risk tolerance, you can also try our Investment risk profiler. This is a short online questionnaire which can help you choose an investment strategy by yourself.

After answering the questions, you can download a report explaining the results of your risk profile.

Please note that this is general advice only, and does not take into account personal financial situations, individual needs or other factors which may be relevant.

Our range of investment options

Brighter Super has a wide range of investment options to cater for different risk tolerances.

You can build your own investment strategy using our single asset class options or choose from one of our ready-made options.

You can change your investment options at any time, although we urge members to seek financial advice before making decisions about investment options.

Full details about all our investment options are provided in the Investment Choice Guide for your account, at brightersuper.com.au/pds-guides.

Track your investment performance online

Brighter Super has an interactive performance graph on its website. It can show you the progress of your investments at any time.

You can see the performance of all investment options, for all account types, over a chosen period. Notes about the calculations are provided on the web page.

Our performance graph is your visual guide to tracking your super's investments.

See how your super’s investments are performing

Investing for the long term

The impacts of geopolitical tensions and market volatility are being felt worldwide. Negative news headlines can make us feel uncomfortable, but it is important to avoid snap decisions during times of uncertainty.

For most people, super is a long-term investment. Staying invested in a diversified portfolio can spread and minimise the risk, helping to reduce the impact of market volatility.

While past performance is not a reliable indicator of future performance, history shows that markets increase over the long term. A rushed decision to switch investment could impact your super’s long-term growth. It’s important to keep your investment timeline in mind and to stay the course when markets are volatile.

If you are feeling uncertain or considering making a change, talking to a financial adviser can often be helpful.

Financial advice

A financial adviser can help you create a plan to achieve your financial and lifestyle goals.

If you already have a financial adviser, they can help you make informed decisions about your Brighter Super account.

If you do not have a financial adviser, Brighter Super’s team of in-house financial advisers are here to help you¹. Types of financial advice include limited advice on a single issue, scaled advice for retirement planning, and comprehensive advice.

Find out more about financial advice.