How is your super invested? A guide to asset classes and diversification

Most Australians know that money is paid into their super, but what happens after it reaches the fund?

Your super fund generally invests your money in its default option unless you choose a different option or mix of options.

Depending on the fund and option, your super may be invested across different asset classes, companies and markets. 

Understanding these investments can help you make sense of changes in your balance. However, all investments involve risk, and the value of your super can rise or fall.

Key takeaways

• If you haven’t chosen how your super is invested, your fund generally applies its default option
  
• An investment option may include shares, property, infrastructure, fixed interest and cash.
• Diversification can reduce reliance on one investment or market, but it does not eliminate risk or guarantee returns.
• Labels such as “growth”, “balanced” and “conservative” can mean different things across different funds.
• Your fund’s current product and investment information can help you understand what your option holds. 

How does a super fund invest your money?

Investment options vary. Some invest in one asset class, while diversified options may invest across:

• Australian and international shares
• property and infrastructure
• fixed-interest investments and bonds
• cash and cash-based investments.

The allocation to each asset class varies between funds and investment options. It may also change over time.

Your super balance reflects the value of the investments held within your option. It can also be affected by contributions, withdrawals, fees, insurance premiums and other account transactions.

What is an asset class?

An asset class is a broad category of investments with certain characteristics in common. Each asset class has different risks and return characteristics.

Shares

Shares represent an ownership interest in a company. Super funds may invest in companies listed in Australia and overseas.

Share prices can rise and fall because of company performance, economic conditions, interest rates and investor sentiment. Shares can experience significant fluctuations, and returns are not guaranteed.

Property and infrastructure

Super funds may invest in assets such as commercial property, roads, airports and utilities. These investments may be listed on a public market or held as unlisted assets.

Listed and unlisted investments can have different valuation, liquidity and risk characteristics.

Fixed interest

Fixed-interest investments generally involve lending money to a government, company or other organisation. Bonds are one example.

Fixed-interest investments may behave differently from shares, but they are not risk-free. Their value can be affected by interest rates, inflation, credit risk and market conditions.

Cash

Super funds may also hold cash or cash-based investments. Cash generally experiences less short-term price fluctuation than shares, but its returns may be lower and inflation can reduce its purchasing power over time.

What does diversification mean?

Diversification means spreading investments across different assets, companies, industries or markets instead of relying heavily on one investment or part of the market.

Different investments do not always move in the same direction at the same time. For example, Australian shares may perform differently from international shares, while shares, property, fixed interest and cash may respond differently to the same economic conditions.

Diversification can reduce the effect that poor performance in one investment or market segment has on an overall portfolio. It does not eliminate investment risk, prevent losses or guarantee positive returns.

Want help understanding diversification?

Speak with our team to help you understand the investments and risks within your option.

Can one super account be diversified?

Yes. Having one super account does not necessarily mean your money is invested in only one place.

A diversified investment option may hold investments across several asset classes, markets and companies. The extent of the diversification depends on the option’s actual holdings and asset allocation.

What do growth, balanced and conservative mean?

Some funds use terms such as “growth”, “balanced” and “conservative” to describe their investment options. These labels are not used consistently across all funds.

In general, an option described as growth may have a greater allocation to assets such as shares and property. An option described as conservative may have a greater allocation to fixed interest and cash.

However, options with the same label can have different investments, objectives, risk levels, fees and suggested investment timeframes. The label alone should not be used to assess how an option is invested or whether it is appropriate for a particular person.

Thinking about your investment option?

Before making a change, consider speaking with our team to help provide advice based on your objectives, financial situation and needs.

How can you find out what your super is invested in?

Your super provider may publish information about its investment options through its member portal, website and product documents. This may include:

• your current investment option
• the allocation to each asset class
• investment objectives and risk levels
• fees and costs
• historical performance
• information about listed and unlisted investments.

Historical performance does not guarantee future performance. Investment allocations and other product information may also change, so use the fund’s current information.

If you have not selected an investment option, one may have been applied by default. Your provider can confirm which option currently applies to your account.

Whether an investment option is appropriate depends on factors including a person’s objectives, financial situation and needs. An appropriately licensed financial adviser can provide personal advice.

Bringing the bigger picture together

Super may be one part of your financial position alongside savings, investments, property, debts and other assets and liabilities.

Learning what your super option holds can provide useful context for changes in your balance and help you look beyond individual market headlines.

Learn more about the services available through PictureWealth and the financial information they can help you bring together.

Frequently asked questions

What is superannuation invested in?

Super funds may invest in Australian and international shares, property, infrastructure, fixed interest and cash. The investments held depend on the fund and investment option.

What does diversification mean in super?

Diversification means spreading investments across different assets, companies, industries or markets. It may reduce reliance on one part of the market, but it does not eliminate risk or guarantee returns.

Is a balanced option always divided equally between growth and defensive assets?

No. Investment-option names and allocations vary between funds. Options with the same label may hold different investments and have different risk characteristics.

Can my super balance fall?

Yes. Investment values can rise or fall. Your balance may also change because of contributions, withdrawals, fees, insurance premiums and other account transactions.