• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

SuperGuide

Superannuation and retirement planning information

  • SuperGuide Premium
  • Account
  • Log In
  • SuperGuide Premium
  • Account
  • Log In
  • How super works
    • Super for beginners
    • Super rules
    • Employers guide to super
    • Super contributions
    • Super and tax
    • Accessing super
    • Super news
    • Women and super
    • Super tips and strategies
    • How-to guides
    • Super quizzes
    • Superannuation Q&As
    • Superannuation glossary
  • Super funds
    • Best performing super funds
    • Super fund rankings
    • Best performing pension funds
    • Pension fund rankings
    • Super fund average returns
    • Super investing strategies
    • Comparing super funds
    • Choosing a super fund
    • Choosing an investment option
    • Super fund fees
    • Insurance and super
    • Super fund profiles
  • SMSFs
    • SMSFs for beginners
    • SMSF administration
    • SMSF checklists
    • SMSF compliance
    • SMSF investing
    • SMSF pensions
    • SMSF strategies
    • SMSF Q&As
  • Plan your retirement
    • Retirement planning for beginners
    • When should I retire?
    • How long will I live?
    • How much super do I need?
    • Will I get the Age Pension?
    • How much will I spend in retirement?
    • Financial advice
    • Retiring overseas
    • Preparing for retirement
    • Retirement planning strategies
    • Retirement calculators and reckoners
  • In retirement
    • Income in retirement
    • Super lump sums
    • Super pensions
    • Age Pension
    • Working in retirement
    • Life in retirement
    • Senior concessions and services
    • Aged care
    • Estate planning
    • Super death benefits

Home / Super funds / Choosing an investment option / Risk profiling and your investment choice

Risk profiling and your investment choice

May 22, 2019 by Penny Pryor Leave a Comment

Reading time: 4 minutes

On this page

  • Risk profile quiz
  • Your risk profile results
  • Investment profiles
  • Investing over your lifecycle
  • Direct investments

Investments exist on a risk spectrum. The higher the return, the higher the risk. So, your comfort with different levels of risk is crucial in determining what kind of assets you can, and should, invest in.

You might already have a reasonable idea of whether or not you’re aggressive or conservative when it comes to risk, but perhaps you’re not entirely sure of where your partner sits on the risk spectrum. Either way, its’ a good idea to get as clear an understanding as possible of your individual and/or combined risk appetite and how that fits in with the range of investment options available when it comes to superannuation.

Risk profile quiz

Complete the following quiz to understand your risk profile (choose the answer most appropriate to your situation).

1. What’s your favourite leisure activity?

  1. Reading a book by the fire
  2. Going to the beach
  3. Mountain-biking
  4. Canyoning

2. What’s your idea of a dream holiday

  1. A coastal weekend getaway
  2. A cruise of New Zealand
  3. A tour of France and Germany
  4. Hiking in Nepal

3. What keeps you awake at night?


Advertisement
SuperGuide Premium is ad-free
  1. Worrying about my family
  2. Worrying about my job
  3. Worrying about where I’m going to take my next holiday
  4. Not much at all

4. What is your most important personal life goal?

  1. To be happy and content
  2. To be successful at work
  3. To be wealthy
  4. To be an entrepreneur

5. How much would you be prepared to lose in a market downturn?

  1. Nothing
  2. $500
  3. $5,000
  4. $10,000 or more

6. Would you consider borrowing to invest?

  1. No
  2. Maybe
  3. It depends on the investment
  4. Definitely yes

7. How often could you live with your portfolio having a negative year?

  1. Never
  2. Once every 20 years
  3. Once every 10 years
  4. Once every 7 years

8. How long are you investing for?

  1. Five years
  2. 10 years
  3. 15 years
  4. 20 years or more

9. What would you do with a $20,000 windfall?

Compare super funds

Read more...

Advertisement
  1. Spend it
  2. Bank it in a savings account
  3. Invest it in a diversified equity portfolio
  4. Invest it in some interesting alternative assets with a high-return profile

10. If the share market fell by 20% what would you do?

  1. Sell out of my shares and put the funds in a bank deposit
  2. Sell the shares that had fallen the most
  3. Do nothing and expect the shares to recover
  4. Look for good quality shares at cheap prices to buy

Your risk profile results

Mostly As – Defensive

If you chose mostly As , then you are very concerned by any prospect of losing your money. This is an important consideration when choosing your investment profile and knowing this will help you steer away from investments that make you nervous.

Mostly Bs – Conservative

You’re more comfortable with risk but still don’t want to take on too much, regardless of the potential return. A conservative risk profile means you are focused on preserving your investments and existing investment income.

Mostly Cs – Moderate

Advertisement

You are looking for the higher returns that a higher risk profile will deliver. You are comfortable with a year of negative returns here and there as you know that you will be able to make it back over future years.

Mostly Ds – Aggressive

You prefer to invest in assets that have a higher risk as there is a higher chance of return. You can tolerate big falls in your investments, as you understand that with the risk levels you are comfortable with, you will be able to recoup your losses (and then some) over the longer term.

Investment profiles

Whether you have an SMSF or invest via a retail or industry superannuation fund you will need to decide on an investment profile. For SMSFs this will be included in your investment strategy, but if you invest via a larger fund you will have a range of investing options available to you.

Super funds now provide a vast range of options to members – some funds even offer the option of investing directly in shares – but they will also include a suite of five or six pre-mixed investment options. These options are defined by their allocation to growth assets and defensive assets.

Equities, commodities and private equity are considered growth assets. Cash and fixed interest i.e. bonds, are considered traditional defensive assets. Property and infrastructure have both growth and income-generating properties which leads them to being classified as mixed growth/defensive assets.


Advertisement

The following are the kinds of investment profiles that you will be able to choose from depending on your risk profile, starting with the most aggressive risk profiles, tapering down to the most defensive.

Risk ProfilePercentage of growth assetsPercentage of defensive assets
High Growth98%2%
Growth80%20%
Balanced70%30%
Moderate growth55%45%
Stable35%65%
Income plus30%70%

Investing over your lifecycle

Your investment profile and asset allocation should be something you review over your lifecycle. Your capacity for risk will be different during different stages of your life. When you are young and have plenty of time to make back any losses, you can afford to take on larger allocations to riskier growth assets. But as you get older and are more protective of your capital as you get closer to retirement, you may look to switch to a more conservative asset allocation with a higher allocation to defensive assets.

If you are an SMSF trustee, your investment strategy and asset allocation should be something that is considered annually during trustee meetings. If you have your superannuation in a large fund you should remind yourself to review your investment option at least every five years to see if it is still appropriate.

Super funds are also now offering “lifecycle” investment options which automatically change your investment profile and asset allocation depending on the year you were born in. Younger superannuants will have higher growth asset allocations while older members will have higher allocations to defensive asset classes.

Direct investments

As they compete with the growing SMSF sector, large APRA super funds are offering the ability to tailor your investment choices almost as much as you could in an SMSF. The direct investment options they offer may be limited to the ASX/S&P 200 or ASX/S&P 300 shares, but they will probably also include exchange traded funds which would enable you to add international equities to the mix.

There are over 200 ETFs available on the ASX, across a range of asset classes, including fixed income and global equities. There are also sector-specific and strategy-specific ETFs which would allow a very high degree of diversification in a direct investment portfolio.

When choosing direct investments with your superannuation fund, it is just as important to understand your risk profile and apply it to your investment choice. Investing in a small cap global ETF would not be advisable for somebody with a defensive risk profile but would be more suited to somebody with an aggressive risk appetite.

There are also parameters around how you can invest in direct investment options. You need to keep a certain amount in another investment option within the superannuation fund (usually around 10 per cent), and there will most likely be a minimum amount that you need to have in superannuation to be able to access the direct investing investment choice. To limit concentration, there may be a maximum amount (around 20 per cent) which can be invested in any one share.

Investments via a direct investment option will be held in your fund’s name, not yours and in addition to certain shares and ETFs you should also be able to invest via the direct option in term deposits.

Are you with a top performing super fund?

Click here to compare more than 90 Australian super funds, including returns, fees, features, awards and more.

Learn more about investment options in the following SuperGuide articles:

What is a growth asset? Time to set some standards

August 3, 2020

Balanced, Growth, Defensive: What’s in a name?

August 3, 2020

Choosing a super investment option

February 15, 2020

Is it time to change your super investment option?

January 1, 2020

How to change your investment option: 6 points to check before you switch

January 1, 2020

How to choose an investment option for your super pension

December 11, 2019

Learn more about risk in the following SuperGuide articles:

How risky is your super?

August 5, 2020

Top 10 Balanced super funds ranked by risk and return

August 4, 2020

Consider these two risks before you start a super pension

April 9, 2020

How to grow your super: Know your risk profile

December 1, 2019

7 ways your super fund manages investment risks

October 1, 2019

9 investment risks and how they can affect your super

September 3, 2019

5 ways sequencing risk affects your retirement

September 1, 2019

Longevity risk: How deferred annuities can help your savings last

November 21, 2017

Related topics

Choosing an investment option Super funds

Related features

Super quizzes

IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

© Copyright SuperGuide 2009-21. Copyright for this article belongs to SuperGuide Pty Ltd, and cannot be reproduced without express and specific consent. Learn more

Primary Sidebar

How super works
Super for beginners
Super rules
Employers guide to super
Super contributions
Super and tax
Accessing super
Super news
Women and super
Super tips and strategies
How-to guides
Super quizzes
Superannuation Q&As
Superannuation glossary
Super funds
Best performing super funds
Super fund rankings
Best performing pension funds
Pension fund rankings
Super fund average returns
Super investing strategies
Comparing super funds
Choosing a super fund
Choosing an investment option
Super fund fees
Insurance and super
Super fund profiles
SMSFs
SMSFs for beginners
SMSF administration
SMSF checklists
SMSF compliance
SMSF investing
SMSF pensions
SMSF strategies
SMSF Q&As
Plan your retirement
Retirement planning for beginners
When should I retire?
How long will I live?
How much super do I need?
Will I get the Age Pension?
How much will I spend in retirement?
Financial advice
Retiring overseas
Preparing for retirement
Retirement planning strategies
Retirement calculators and reckoners
In retirement
Income in retirement
Super lump sums
Super pensions
Age Pension
Working in retirement
Life in retirement
Senior concessions and services
Aged care
Estate planning
Super death benefits
Advertisement
Compare super funds

Join SuperGuide Premium and give your retirement plans a boost.

Get access to independent expert commentary on the latest super, retirement and SMSF issues, including the top performing super and pension funds, how much super is enough, the latest super rates and thresholds and new super measures and strategies.

You’ll have access to more than 600 articles, how-to super guides, checklists, tips, calculators, reckoners and other tools, as well as a monthly newsletter.

Find out more

Footer

Important: Disclaimer

All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs.

You should consider whether any information on SuperGuide is appropriate to you before acting on it.

If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions.

Learn more

About SuperGuide

SuperGuide is Australia’s leading superannuation and retirement planning website. Learn more

Superguide Pty Ltd ATF Superguide Unit Trust as a Corporate Authorised Representative (CAR) is a Corporate Authorised Representative of Independent Financial Advisers Australia, AFSL 464629

  • Contact us
  • Advertise on SuperGuide
  • Careers

Before using this website

  • New to SuperGuide?
  • Terms and Conditions of Use
  • Financial Services Guide
  • Privacy Policy and Privacy Collection
  • Copyright Policy
  • Editorial Policy and Complaints
  • Disclaimer

  • SuperGuide Premium
  • Subscriber feedback
  • Sitemap