Investment basics

Simplify not mystify. The basics of investment

When it comes to your super, the way it is invested is important, but it can be confusing. To help you, here are the key investment basics that you should know.

Topics we cover include:

• Super is for your future
• Balancing your risks and returns
• Your investment options
• Setting strategies and objectives
• Diversification
• Active management

Super is for your future

Superannuation is a tax-effective way to save money for when you retire. If your career can span 30 or 40 years, that's quite some time to build a nest egg.

RecruitmentSuper wants you to get the most out of your super at any life stage. We have a range of investment options to invest the money you save with the aim of maximising your benefits at retirement

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The following ideas will help you understand the difference between these options:

Investment horizon

Your investment horizon is the period your super will be invested for.

RecruitmentSuper has members across a broad range of life stages. You could be starting out in your first job, or looking forward to the final weeks at work.

This means you are looking to invest for longer and shorter periods.

Your investment horizon will extend to the age at which your super is expected to run out in retirement, not the age at which you retire from the workforce.

A lifetime of growth

If you have a long investment horizon, say 20 or 30 years, your super will typically benefit from a cumulative effect, where earnings received later build upon earlier earnings.

This is called the magic of compound interest. This is one of the main benefits of the superannuation system, because all investment earnings remain invested along with your contributions until retirement.

The longer your super is invested, the greater the impact of compounding. This is one of the key reasons you should take control of your super as soon as you start working. After all, it's your money, you've earned it!

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Balancing your risks and returns

Markets move. Markets go up and down. History tells us that there is a strong link between investment risks and investment returns.

Generally, investments that provide higher returns over a long period are more likely to fluctuate in value over the short term.

Investment risk refers to these fluctuations and the chance that your investment may go down in value and be worth less when you access it than expected.

This is why it is important to understand your own investment horizon and how long you intend to work. The impact of short-term investment risk is typically reduced as investment horizons increase.

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Looking at your investment options

When it comes to risk versus return, you may be happy to take more risk, or prefer to play it safe. It's up to you.

RecruitmentSuper has designed a range of investment options with varied risk and return profiles. These options cater to the various investment horizons and risk appetites that you can explore.

Behind the investment options, the Trustee has a robust investment platform designed to maximise returns, and minimise investment risk, whilst keeping associated management costs down.

Setting strategies and objectives

If you look at the definitions of RecruitmentSuper's investment options, you will see they define:

• a rate of return (such as “at least 4.5% a year above CPI”) as an objective
• an expected level of risk (such as “a negative return approximately once every four years”).

RecruitmentSuper has developed investment strategies that outline the broad processes used to manage the investment portfolio as a whole and the risks associated with the various asset classes into which RecruitmentSuper's investment options invest.

The investment strategy for each investment option includes an asset allocation range for each asset class.

Diversification

Investment professionals work to strategically increase returns and lower risk.

Where appropriate, RecruitmentSuper invests with a number of different managers with each manager having a complementary but not matching investment style to ensure a spread of investment risks. This is known as diversification and assists especially in managing market risk typically associated with growth type assets.

The investment managers have discretion to invest in a full range of assets, both Australian and overseas, including shares, property and fixed interest securities. They are also allowed to use derivatives (such as futures and options contracts) for hedging and speculative purposes. This aims to protect RecruitmentSuper members against adverse movements in investment markets.

Active management

RecruitmentSuper reviews each investment manager regularly. This involves looking at their investment style, resources and organisational strength, and assessing whether their performance has met the Funds' objectives.

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