Understanding Superannuation Investment Options in Australia

Your super fund invests your contributions into a mix of assets determined by the investment option you select. Most members never actively choose - they stay in the fund's default MySuper option.

• Asset classes: super funds invest in shares (Australian and international), property, infrastructure, bonds (fixed interest), cash, and alternative assets (hedge funds, private equity); the mix determines the risk and return profile
• Growth assets: shares, property, and infrastructure are considered growth assets - higher long-run returns but more volatile; a 30% fall is possible in a severe market downturn
• Defensive assets: bonds, cash, and some alternative assets are defensive - lower returns but more stable; provide a buffer during market downturns
• Risk/return trade-off: growth assets have historically returned 7–10% per year over long periods; defensive assets return 2–5%; a portfolio heavily weighted to growth earns more over decades but falls further in bear markets
• MySuper: the default pre-selected investment option that must meet minimum standards set by APRA; the option selected for new members who do not choose an option themselves; must pass APRA's annual performance test
• APRA performance test: each year APRA compares MySuper products against a benchmark; products that persistently underperform must write to their members; chronically underperforming products can be prohibited from accepting new members
• Your choice matters enormously over a career: a 30-year-old with $50,000 in a high-growth option returning 8% per year will have approximately $503,000 at 60; the same balance in a conservative option returning 5% will have approximately $216,000 - a difference of nearly $300,000

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Most super funds offer a range of named options. The labels vary between funds but the underlying asset allocations follow a broadly similar pattern.

• High Growth or Aggressive: typically 85–100% growth assets (shares, property, infrastructure); highest long-run expected return (approximately 7–9% per year net of fees), highest short-term volatility; appropriate for those with 20+ years to retirement who can weather large falls
• Growth: typically 70–85% growth assets; the most common default MySuper option; long-run expected return approximately 6–8% per year net of fees
• Balanced: typically 50–70% growth assets; modestly lower expected return than growth, with somewhat less volatility - often misnamed as it is not equally balanced between growth and defensive
• Conservative or Moderate: typically 30–50% growth assets; lower expected returns, less severe downturns; may be appropriate for those within 5 years of retirement who cannot afford a large loss
• Capital Stable or Conservative Balanced: 20–40% growth assets; predominantly defensive; suitable for those in drawdown who need income stability
• Cash: essentially a bank deposit rate inside super; protects capital but earns almost nothing in real terms after inflation; rarely appropriate as a long-term choice; sometimes used for a short-term tactical shift
• Sector-specific options: some funds offer Australian shares only, international shares only, or sustainability/ethical options - these can be combined by members to create a custom overall portfolio allocation across multiple options

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The right investment option depends primarily on your age, time to retirement, and how you would genuinely respond to seeing your balance fall 20–30%. Younger investors consistently under-invest in growth assets.

• Under 40 with 25+ years to retirement: high-growth or growth option; time in the market overwhelmingly compensates for volatility; switching to conservative after a market fall is the most common and costly mistake
• 40–55 with 10–25 years to retirement: growth option remains appropriate for most; the time horizon is still long enough to recover from downturns; consider balanced only if you have significant non-super wealth in defensive assets
• 55–64 approaching retirement: consider gradually shifting from growth to balanced as retirement nears; but do not over-shift - a retiree at 65 with a 25-year life expectancy still needs significant growth exposure to avoid running out of money
• 65+ drawing down: balanced or conservative balanced is commonly appropriate; maintain enough growth exposure to sustain purchasing power over a potentially 25–30 year retirement; too-conservative super can cause you to run out of money
• Sequencing of returns risk near retirement: a large market fall in the 2–3 years before and after retirement is far more damaging than the same fall at 40; consider shifting 2–3 years of drawdown needs into cash or defensive assets as a buffer without moving the entire super balance to conservative
• Lifestyle or target-date options: some funds (Vanguard Super, AustralianSuper Lifecycle) automatically shift the asset allocation more conservative as you age; these are broadly sensible but check the actual shift schedule - some become too conservative too early
• Review after major life events: divorce, inheritance, major illness, or a significant change in employment income are all triggers to review whether your current investment option still matches your circumstances

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The default MySuper option usually includes automatic insurance cover - but it may not be the right cover for your situation, and it can be cancelled without your knowledge.

• Automatic cover: most MySuper products automatically provide death, total and permanent disability (TPD), and in some cases income protection insurance for eligible members - subject to age (typically 25+) and minimum balance ($6,000+) requirements following the 2019 Protecting Your Super reforms
• Inactivity lapse: if your account is inactive for 16 consecutive months (no contributions or rollovers), automatic insurance cover is cancelled - this catches casual workers, career break takers, and those who stop contributing to a fund
• Cover amount relevance: the default cover amount is set by the fund and may bear no relationship to your actual insurance need; a young person with a mortgage and dependants almost certainly needs more cover than the fund's default
• TPD definition inside super: super funds are only allowed to hold TPD insurance with an any-occupation or broader definition - you cannot hold own-occupation TPD inside super; if you want own-occupation TPD cover (far more likely to pay in most disability scenarios), purchase it outside super
• Income protection inside super: if offered, super fund IP is limited by APRA regulations to a maximum two-year benefit period for policies entered into after 31 March 2020 - inadequate for most people who need a benefit period to age 65
• Switching investment options may not affect insurance: changing your super investment option typically has no effect on your insurance arrangements; however, moving to an SMSF terminates all existing industry fund insurance - you must arrange replacement cover before transferring

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Not all super funds are equal. Fee differences, investment performance, and insurance terms vary significantly - and the differences compound dramatically over decades.

• APRA's annual MySuper performance heatmap: published annually, compares all MySuper products on 7-year returns net of investment fees, administration fees, and insurance premiums - the most standardised comparison available
• YourSuper comparison tool: available on the ATO website; compares up to four MySuper products on fees and net returns; helps members in underperforming funds identify better alternatives quickly
• Fee drag: a 0.5% annual fee difference on $200,000 in super costs approximately $17,000 over 20 years - always compare fees on an equivalent balanced option between funds, not just the annual dollar fee which depends on balance
• Investment performance vs fee savings: a fund charging 0.1% more but delivering 0.3% better net returns after all costs is preferable to the cheaper but lower-returning alternative; evaluate net-of-fee returns, not headline fees alone
• Avoid switching in market downturns: members who switch from growth to cash after a market fall permanently lock in those losses - missing the recovery that inevitably follows; historically, switching after a fall and switching back after recovery destroys long-run wealth
• Consolidation: multiple super accounts each charge administration fees; consolidate to one fund via myATO after comparing options; check whether consolidation cancels existing insurance before completing the rollover

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The investment option you choose inside super is one of the highest-impact financial decisions you will make - yet most Australians spend more time choosing a streaming subscription than reviewing their super.

Roopon members access partner discounts on super advice and financial planning from qualified professionals - plus go in the member prize draws (per campaign terms). Join from $19.99/month at roopon.com.au.

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