Investments

Now that you're familiar with the different asset classes and their risk and return profiles, let's look at some basic investment principles.

1. Set your retirement goals

   It's only natural that different people will have different lifestyle and financial goals for their retirement. For some, travelling may feature heavily. Others may simply want to enjoy more time with their family or take up a new hobby. Whatever your retirement goal, it's important to ensure that you have enough money to afford you the lifestyle that you want in retirement. Recognising your goals from the outset, can help you identify an investment strategy that can assist in meeting those goals.

    

2. Remember your retirement goals

   To achieve any goal, you must be disciplined in your approach. Remember, financial markets can fall as well as rise and it's easy to panic when you notice a downward movement in your investment. However, changing your investment strategy on the basis of short term results alone can often end up losing you money. When financial markets perform poorly, it's important to remind yourself of the goals you've set for retirement and to stick to your investment strategy. Naturally, it's sensible to regularly review your investment strategy, to ensure that it's still appropriate to your needs and goals.

    

3. Risk and time

   We mentioned earlier that different asset classes have varying degrees of risk and volatility . The amount of risk and volatility you're willing to accept is usually related to your investment time horizon (ie the length of time for which you're investing your money).

   For example, if you don't need your super for ten years or more, then the chance of short term ups and downs in return may not concern you. In addition, if you wanted to convert your accumulated benefit into a monthly income stream upon retirement, you could find your time horizon stretches out to another 20 years. On the other hand, if you knew you wanted to access your money within the next 12 months, you may not want to risk losing too much in the value of your super.

   A simple rule of thumb when you're investing is to remember that, the longer you have to invest, the longer the period for any extremes in returns to even out. The following graph shows how an investment of $1,000 pa in the different asset classes would have grown over the last 25 years to 31 March 2004.

    

   

   Source: Counterpoint Group. Assumptions: Cumulative returns shown in today's dollars on $1,000 pa invested at 1 April 1980, net of contributions tax and gross of Investment Management Fees and earnings tax. Indices: S&P/ASX 300 Accumulation Index (Australian shares), MSCI World (ex Australia) Index $A Unhedged (international shares), S&P/ASX 300 Property Accumulation Index (listed property), CBBI All Maturities All Series (fixed interest), ASX Bank Bill/UBS Warburg Australian Bank Bill (cash).

   While past performance does not guarantee future returns, you can see that shares and property, which have fluctuated more significantly than fixed interest securities and cash during this period, have also provided a more favourable gain over the longer term.

    

4. Diversifying your investments

   Diversification means to spread your money across different asset classes or investments and is commonly used to reduce risk.

   The Plan offers diversified and sector-specific investment options. The diversified options invest in a pre-determined mix of each of the four main asset classes in different amounts, while the sector-specific options invest in a particular asset class. However, the sector-specific options still offer diversification by investing across a range of industries, sectors and securities within that particular asset class.

   The Plan offers further diversification among the nine investment options by using different fund managers and alternative investment strategies. By diversifying to such a degree, we aim to achieve higher returns for you, while reducing the level of risk and volatility .

    

5. Seek advice

   Deciding upon the most appropriate investment strategy for your own circumstances is a very personal decision. However, this doesn't mean you need to make it on your own.

   To many people, the subject of investments is complex and overwhelming. Apart from considering all elements of your financial circumstances, there can also be taxation and social security implications. This is where financial advice can be invaluable.

   A licensed financial adviser can:

   1. review your individual circumstances;
   2. help you identify your retirement goals and needs; and
   3. advise on the most appropriate investment option(s) for you.

   If you need advice about your investment strategy or the Plan's services, our Member Services Consultants are qualified to help or if you're planning to retire soon, speak to one of our qualified financial planners.

   Alternatively, if you'd like to speak with an external, licensed, financial adviser, the Financial Planning Association (FPA) can put you in touch with one. You can contact the FPA on free call 1800 626 393 or visit their website at www.fpa.asn.au

   The Australian Securities and Investments Commission (ASIC) may also assist you with information. You can contact their Infoline on 1300 300 630 or visit their consumer website at www.fido.asic.gov.au