Coming To Terms With Risk
Wednesday December 17, 2008
To maximise the amount in your superannuation fund you will need to do more than just find the lowest fees - you will need to find a comfortable level of risk. It is unfortunate, but the nature of a superannuation fund means a certain level of risk, just like most other investments. Many people are so risk averse as to interpret any chance for losses as an absolute chance for losses. While there are certainly investment options that cater to such individuals, on average they will often have terrible returns. In times of great difficulty, however, the low to no risk options tend to do well compared to medium to high risk options, encouraging risk averse individuals to retain their mindset.
Unfortunately for the risk averse, the better performance of the lowest risk types of superannuation funds during hard times is quite unlikely to make up for their poor performance during boom periods and times of normal economic growth. While often less money is lost in bad years, far less money is gained any other time. An investment strategy that revolves around minimising loss is often poorer than a balance of maximising gains and minimising losses.
Essentially, those who are risk averse should look for expert knowledge to find out what is most likely to pay off for them over the course of their entire career. Learning how a superannuation fund works and considering using a self managed superannuation fund can save on fees and allow for higher returns for those who invest in the right areas, but it isn't for everyone and the previously risk averse will much more likely prefer to use a less hands-on style of superannuation investment. Consulting with a professional financial advisor on the best superannuation practices for you could help you to identify the right level of risk for your funds and potentially aid you in maximising your retirement savings in the long run.
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