Your super: What’s under the hood?

Understanding how your super is invested is a big step towards getting ready for life after work. The good news is—given enough time—it often grows!

By Daniel Choo - 5 min 20 sec read

A little about Daniel

Daniel Choo manages the diversified portfolios on behalf of Russell Investments Master Trust members and retail investors. The portfolio management team allocates between different asset classes such as shares, bonds, property and currencies.

Like with most hard-working Australians, your employer has been putting money into your super to help save for your retirement. Maybe you have also been putting in extra super to give it a boost.  

Those contributions aren’t just sitting there dormant… they have been invested in lots of different ways to earn a return, which helps your savings to grow and compound over time. 

Here we want to explain, in a simple way, the many types of investments your super (otherwise known as assets) has been invested in and why your super is invested this way.  

The big picture: growth v defensive  

Broadly speaking, your super has been put into two different categories of investments: growth assets and defensive assets. A mix of these two forms your investment strategy.  

Growth assets are those that aim to grow strongly in value over the long-term (say 10+ years), but can fluctuate in the short term (0-3 years). Typical growth assets are shares or property: they might go up and down with the market, yet over time they are a solid investment that generally increases in value. For example, COVID-19 initially caused huge global share market falls, but then an even bigger rebound, all in the same year! 

As the saying goes, no risk, no return. With growth assets we try to take some measured risk to help your money to earn a decent return. We also invest in lots of different types of growth assets, so you don’t have all your eggs (risk) in one basket. Plus, because your super is invested over many decades, you can afford a bit of ‘up and down’ along the way, as long as your money is growing over time.  

The younger you are, the more time your super has to grow—and the more time you have to ride out any short-term ups and downs—so the more growth assets (or risk) you can afford to have in your super.    

Defensive assets, on the other hand, are those that aim to provide steadier or more stable returns and tend to fluctuate less in the short term (i.e., less risk, less return). But these returns are typically lower over the long-term compared to growth assets. Typical defensive assets are bonds and cash. You don’t get much interest on cash in the bank—but you don’t expect it to lose value either. By investing some of your super in these defensive assets, the risk is balanced out compared to growth assets.  

Defensive assets can offer you more certainty, which can be really important if you are getting close to retirement. This is because the short term return you earn can directly impact the amount of your super you are able to withdraw to spend each year to fund your lifestyle in retirement. 

Generally, people wanting to grow their super need more growth assets in their portfolio, while people nearing or in retirement might want to dial up their defensive assets smoothing out the bumps as they focus on securing their retirement income. If you don’t take on risk when you’re further away from retirement, your super savings won’t grow enough. However, too much risk at the wrong time, could reduce your hard-earned savings just when you need them! The ‘right’ growth vs defensive mix for you will depend on your circumstances, e.g., how you are tracking to your retirement income goals. 

Owning shares in a company 

While you have been working and trying to build up your super, it’s likely the largest proportion of your super has been invested in shares (also called equities) because this asset class generally offers high potential for long term growth. 

When you own a share in a company you hold a tiny slice of that company’s assets, and your investment will go up or down depending on the fortunes of that company. For example, if you own shares in Apple and the new iPhone just released is a worldwide hit, Apple’s shares will probably go up and your tiny slice also goes up in value.  

But if a company makes some dud decisions or experiences some operational problems, the company value can fall and will often do so more sharply than other types of assets.  

That’s why it makes sense to be invested in a very wide range of Australian and overseas shares, ensuring you have a good mix of companies across many industries and countries. Again, making sure you don’t have all your eggs in one basket.  

Fixed income for more safety 

Another major asset class is bonds (also called fixed income). Put simply, a bond is a loan between a borrower and a lender. When you invest in a bond or fixed income security, you are effectively lending the borrower (or issuer of that bond) your money, allowing them to borrow it for an agreed amount of time. 

In return, the borrower will pay an interest rate, and of course the amount you originally invested will also be returned. Bonds are regularly issued by governments and other public bodies but also often come from companies. 

Bonds are considered lower risk than equities, but that can vary depending on the borrower. If the borrower is the government, then you are buying government bonds, and it’s almost certain they will be able to pay back what they borrow. 

Bonds issued by companies (known as corporate bonds) normally come with more risk than government bonds, because if a company fails, they can sometimes have trouble repaying their loans. Even so, corporate bonds are considered safer than shares, because if a company gets into trouble the bond holders get their money back before shareholders.  

While bonds can offer higher returns than cash, keep in mind that bonds can also go down in value, especially when interest rates are on the rise.  

Property for the long term 

Another popular asset class is property. Many people know the value of owning their own home and it’s similar when your super fund invests in property. 

Property investment can include things like real estate investment trusts (REITS), which is where a group of properties are put together into a single trust and shares in that are traded on the stock exchange. Some super funds also buy actual buildings such as office blocks, big shopping centres or warehouses.  

Two newer assets that your super fund may invest in are infrastructure and what is known as alternatives. 

Infrastructure assets are things you probably make use of all the time. They can include toll roads, bridges and railways, or utilities like the water, sewage and electricity systems. Their key features are that they are stable assets with steady income streams (i.e., all those drivers paying the road toll) and are in place for very long periods of time. 

Alternative assets can be pretty much anything else that we haven’t mentioned already. They can include commodities like oil, gas and precious metals; early funding for startups; as well as other strategies like hedge funds and currency trading. 

Getting invested 

Understanding the basics of what your super is invested in can be exciting, especially as your savings start to grow. People talk about the value of shares or property every day and, in fact, you too own these assets, through your super. Getting a feel for how hard your super money is working across all these assets makes thinking about your retirement less daunting—and maybe even encourages you to put a bit more money in!  

Issued by Total Risk Management Pty Ltd ABN 62 008 644 353, AFSL 238790 (TRM) as the trustee of the Russell Investments Master Trust ABN 89 384 753 567. This document provides general information only and has not been prepared having regard to your specific objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. The information has been compiled from sources considered to be reliable, but is not guaranteed. Any examples have been included for illustrative purposes only and should not be relied upon for the purpose of making an investment decision. Past performance is not a reliable indicator of future performance. The Product Disclosure Statement (PDS) can be obtained by phoning 1800 555 667 or by visiting russellinvestments.com.au. Any potential investor should consider the latest PDS in deciding whether to acquire, or to continue to hold, an investment in any Russell Investments product. The Target Market Determinations for the Russell Investments Master Trust are available on our website.

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