As you get closer to retirement, you may care to reduce the risk profile of your investments. The risk profile of your superannuation investment strategy should be determined by a combination of your financial goals and the time frame in which you want to achieve them.
The returns that you receive on investments are based on the income that those investments can generate and the capital growth that the investments will experience. Investments can be broadly categorised into defensive and growth assets.
Defensive assets: generally have a very low level of associated risk but will also yield lower returns, such as cash and term deposits.
Growth assets: typically considered to have a better potential for high returns but carry short term risks, such as shares and properties.
By diversifying your superannuation investments between growth assets and defensive assets you can fine-tune your portfolio to suit your personal circumstances.
Individuals running a self-managed superannuation fund should already have a strong understanding of their risk profile. However, if you are a member of a public fund it can still be possible to retain a high degree of control over your risk profile. Some public funds simply offer broad investment categories that you can select, usually between five and ten. Others offer members a much higher degree of control over their portfolios, even going so far as to allow you to select specific companies to buy shares from. Investors with an active interest in determining their risk profile may wish to investigate self-managed superannuation.