What choice of portfolio for different age groups?

We have different priorities at different times of our life and our decisions are reflective of this.

Hey when you’re twenty staying out all night, drinking up a storm, and spending your whole pay check in one night can seem like a fairly logical thing to do. The same person at forty five with two kids and a mortgage might think that a less viable option for relaxation.

This same dynamic applies in relation to our financial decisions, what sounds like a good idea at twenty, might be less sound at forty five and a really bad decision at sixty five.

So in looking at your investment portfolio within a super fund you have to take into consideration the time of life you’re at, the assets you currently have and also how you ideally see yourself living in retirement.

Sometimes it comes as a surprise to people to learn that their super fund has a range of investment options they can choose from. They might have previously thought that this was a static offering, where each member of the funds money was spread across the same investments.

There is a default investment option for people that don’t wish to make a choice, and many funds now offer an option called MySuper which offer people a single diversified investment option, lower fees, and simple features, (so you aren’t paying for things you don’t need).

The options are based largely around the amount of risk involved. Let’s break them into four main categories:

  • Growth, which typically invests around 70% in shares or property, looks for higher returns over the long term. Can mean losses in some years due to market volatility.
  • Balanced, invests around 50% in property and shares, 50% in fixed interest and cash. Reduces exposure to volatility but does produce less return than growth funds in good years.
  • Conservative, only around 30% in property and shares, less chance of experiencing bad years, but does reduce returns over a longer time frame.
  • Cash, the most conservative avenue, invests 100% of your money with Australian deposit taking institutions and “Capital Guaranteed” life insurance policies. Aims to guarantee you won’t experience losses on your investments. 

I reiterate, think:

  • About your current age
  • What level of investment risk you are comfortable with
  • How long until you can access your funds
  • How you would like to live in retirement

 

See the below table for a little more detail on the types on investment strategy:

Investment mix

Typical characteristics

Growth

 Around 70% in shares and property
 The rest in cash or fixed interest

Investment: $10,000 after 5 years = $14,700

Expected return: 8%
(gross returns before fees, taxes and other costs)

Volatility: High 

Expect a loss: 4-5 years in 20

Balanced

 Around 50% in shares and property
 The rest in cash or fixed interest

Investment: $10,000 after 5 years = $14,400

Expected return: 7.5%
(gross returns before fees, taxes and other costs)

Volatility: Medium 

Expect a loss: 4 years in 20

Conservative

 Around 30% in shares and property
 The rest in cash or fixed interest

Investment: $10,000 after 5 years = $13,700

Expected return: 6.5%
(gross returns before fees, taxes and other costs)

Volatility: Low 

Expect a loss: 0 years in 20

Cash

 100% in deposits with Australian deposit-taking institutions

Investment: $10,000 after 5 years = $12,800

Expected return: 5%
(gross returns before fees, taxes and other costs)

Volatility: Very low 

Expect a loss: 0 years in 20

There’s more than a little to consider in making the right choice for you. The good news is that a Rate Detective consultants are on hand and ready to help you out today. We can run you through a risk profiling calculator tool and report back to you your degree of risk aversion based on your answers. 

Published on June 6-th, 2015 in Superannuation
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.