All investing involves risk.
In seeking higher returns for your super, the trade-off is taking on increased risk.
Generally, shares and property have higher risk and higher expected returns than fixed interest and cash. Therefore, the asset mix in each investment option is important in assessing the option’s expected return and risk.
“Risk” means the change in value of investments away from expectations. The value of higher risk investments fluctuates more widely and frequently and is more likely to result in loss of value than lower risk investments. Each investment option has a different risk profile.
The value of investments is influenced by many factors, such as economic and market conditions, government policy, interest rates, currency movements, inflation and the performance of the fund managers engaged by Funds SA.
Some important risks are:
Inflation may exceed the return you receive on your investment.
Economic, technological, political or legal conditions may affect the value of investments. Market sentiment may also alter the value.
The risk that individual investment managers underperform.
Changes in interest rates may also affect investment returns positively or negatively.
For overseas investment there is a risk that the value of other currencies may change in relation to the Australian dollar and reduce the value of the investment.
Derivatives are financial contracts used in the management of investments whose value depends on the value of specific underlying investments. Their value can fluctuate, sometimes away from the expected value, and they are also subject to counterparty risk.
Counterparty risk is the risk that an organisation contracted to provide an investment service is not able to do so. This may result in loss of value.
The value of each option’s underlying investments can rise as well as fall. Some of the most common influences on underlying investments include:
Australian shares. Individual shares are affected by factors affecting the share market generally and also by the profits and expected profits of individual companies.
International shares. There are similar risks as for Australian shares. Additionally, they are affected by political factors and the currency exchange rate of the country where the shares are held.
Property. Economic factors such as inflation and unemployment will affect the return on property as well as the location and quality of the property itself.
Diversified fixed interest investments. Changes in interest rates, as well as the risk of loan repayment default, will result in a change in value of this investment.
Other risks specific to super investments include changes to super or taxation laws, which may affect the accessibility or value of your investment.