When choosing an investment option you are really choosing what type of asset you want your super money to be invested into. What types of investment option choices do you have?
By Alex Dunnin

KEY POINTS
The main types of investment sectors are shares, property, fixed interest, and cash. Diversified options spread your investments across several investment sectors. Growth assets are shares and property, and the more you have the higher your returns should be. You don't have to diversify your investments as you can choose to put all your money into just one investment scetor. These are specialist options.

Not all investment options are the same. So what makes them different? The answer is what they invest in. When your super fund makes investments, it does this by buying assets that it thinks will grow in value over time. The better the investment the bigger the growth in value.

The main types of assets a super fund can buy are shares, property and fixed interest. These can either be Australian or overseas shares, property or fixed interest. These asset types are called asset classes, or sometimes investment sectors.

Diversified investment options

If you aren’t sure what asset class you should invest into, sometimes a great strategy is to spread your investments across lots of asset classes. If you want to spread your money across several asset classes, this is a 'diversified' investment strategy. Conversely, if you want to focus upon a single asset class, this is a 'specialist' investment strategy.

Diversified options can also be called 'multi-sector' options, while specialist asset class options can also be called just 'sector' options. Diversified options are by and far the most popular investment options because they let people spread their risk by ‘not having all their eggs in one basket’.

But not all diversified investments are the same either. What makes them different is the proportion of growth assets they have, where growth assets are assets like shares and property.

Growth or defensive

Shares and property are called growth assets because they are expected grow in value much faster than other assets. While other assets, like bonds and cash, are not expected to grow as fast as shares and property, they help your investment portfolio because they usually pay regular income to the fund as rents or interest payments. Because of this, these assets are also called ‘income asset’.

But it can get a little more subtle as well. Some property assets, like investment in direct property or infrastructure, even though they are property, are really set up to pay rents and regular income to investors just like other more traditional income assets.

The rule of thumb however is that the more growth assets in your investment options the more aggressive they are and the higher their long term returns should be. A good super fund will always have a well thought out mix of growth and income assets.

And after all this, if you still can't decide, your super fund will simply put you into their default investment option, which is usually diversified balanced or growth anyway.

The following table describes what each of the investment option categories mean.

Category		Type		What it invests in		Risk and returns level
Diversified		Default		Usually balanced or growth. For when you can't decide.		Usually high
		Growth		More than 75 per cent of the investments are in growth assets.		High
		Balanced		Between 55 and 75 per cent of the investments are in growth assets.		Medium
		Capital Stable		Between 35 and 55 per cent of the investments are in growth assets.		Low-medium
		Capital Guaranteed		Less than 35 per cent of the investments are in growth assets.		Low
Specialist		Australian Equities		Only invest into Australian shares.		High
		International Equities		Only invest into international shares.		High
		Property		Only invest into property, either being listed property trust or direct property.		High
		Australian Fixed Interest		Only invest into Australian interest bearing securities, being government bonds, company debentures, or higher yield interest bearing securities.		Low
		International Fixed Interest		Only invest into international interest bearing securities, being overseas government bonds, foreign company debentures, or higher yield interest bearing securities.		Low
		Cash		Only invest into cash.		Low

<< Back to Learning Centre