Choosing your DIY super investment strategy.All DIY super fund trustees must prepare an investment objective for their fund and implement an investment strategy to achieve it. The investment strategy must reflect the fund's purpose and circumstances and detail how it will: - maximise member returns within an acceptable level of risk
- diversify across a range of assets (for example, shares, property fixed interest)
- pay benefits and fees as required
There are a number of factors you should consider before setting your fund's investment strategy. Objectives and time horizon
Before you start building your investment portfolio, you need to determine your investment objectives and timeframe. Superannuation is a long-term investment strategy, so it's important to take a long term view when setting your investment strategy. With current life expectancies and medical advances we can now look forward to a longer retirement. This means you can spend more than one third of your working life in retirement. So, even if you are close to retirement you should take this into consideration. It's important that you plan for your retirement income to outlive you not the other way around. According to a recent Westpac ASFA Retirement Standard figures, a single person retiring at 60 would need more than $495,000 to live a comfortable retirement lifestyle. Of course, if you want a more decadent lifestyle you will need to save more. If you are closer to retirement, you may consider a more conservative portfolio with a mix of growth and income assets. Younger people can usually afford to opt for a more growth oriented portfolio. Risk tolerance
All investments carry some form of risk. Usually, the higher the risk the higher the potential return and vice-versa. It is important to understand your attitude to risk before you invest. Risk is measured in terms of volatility, that is the amount returns fluctuate from year to year. Growth assets like shares and property tend to be more volatile over shorter time frames, but offer greater growth potential over the longer term. Generally, the longer your investment timeframe the higher the level of growth assets you can include in your portfolio. If the idea of your investments going up and down is going to keep you up at night, you should consider wether you would be happier with a more conservative or balanced investment approach. Although taking no risk can be one of the biggest risks of all. Inflation and costs can erode your investment returns over time, if you invest all your money in cash. So it's important to keep your money invested. According to the ATO, self managed super funds have more than 20 per cent of their assets invested in cash, more than double the amount of other superannuation funds. If in doubt, speak to a professional investment adviser about the best options for your investment time horizon and risk profile. Diversification - the key to reducing risk
Spreading your money across a range of investments is one of the best ways to reduce your exposure to market risk. This way you are not relying on the returns of a single investment. Investment markets move up and down at different times. With a diversified portfolio of investments, returns from better performing investments can help offset those that underperform. Smart Investing
By Robin Bowerman
11th May 2007
18th-May-2007 | 