Are you using the right super risk profile?

MLC has released research showing that a quarter of us are have our super set to the wrong risk profile, potentially costing us hundreds of thousands of dollars.

Our retirements could be that much more comfortable, the research suggests, if we were willing to spend a few minutes ensuring that our super investments are set to the right risk profile. Women in particular seem to set and forget their super, robbing themselves of potentially hundreds of thousands of dollars in savings. The difference for a woman earning $80,000 a year sitting at a conservative risk profile throughout her life and changing her investments to reflect her changing circumstances could be as much as $294,000 by the time she retires.

What is a risk profile?

Your super risk profile is a guide for the investment mix in your super fund. A conservative risk profile seeks steady low return investments, but is less likely to see a loss. A more aggressive profile seeks higher returns but is also be more at risk of a downturn.

The four most common risk profiles are:

  • Conservative: Low risk. A conservative investor primarily seeks to minimise risk and loss of their accumulated wealth. This investor is comfortable accepting lower returns for a higher degree of stability.
  • Balanced: Medium risk. A balanced investor seeks to reduce risks and enhance returns equally. This investor is willing to accept modest risks to seek higher long-term returns.
  • Growth: High risk. A growth investor values higher long-term returns and is willing to accept considerable risk. This investor is comfortable and willing to endure short-term fluctuations and/or losses in exchange for the potential of higher long-term returns.
  • High Growth/Aggressive: Very high risk. An aggressive investor values maximising returns and is willing to accept substantial risk. This investor may endure extensive volatility and significant losses in the hope of maximising long-term returns.

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Which risk profile should I use?

Generally speaking, the longer the timeframe until you want to realise your investment, the more risk you can afford, as over the years any loss should be mitigated by the gains. The MLC survey suggests that many Australians are ignoring their investment risk profile, choosing an option that may not align with their actual needs and objectives. Worse than that, many don’t even know what risk profile they are using, including 45% of women aged between 18 and 29.

Determining your specific risk profile will depend on your individual circumstances, but either a financial advisor or your super fund will be able to help you discover yours. It’s also important not to do so once and then ignore it. As your circumstances change – your age, your income, having children – your specific needs will likely change and what worked for you before may no longer be the right fit. Paying attention to your super and the level of risk suitable for you is one of the best ways to maximise your retirement savings. You can read the MLC survey here.

The following table contains details of the superannuation funds rated by Canstar based on someone aged 30-39. This table has been sorted by three-year performance (highest to lowest).

Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

To view the past performance of all super funds, rated by Canstar, use our comparison tool:

Compare Superannuation Funds

 

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