How are super funds and Income accounts invested and why you need to know
It is important that you take the time to understand the basics, as it will help you to determine your risk tolerance and your investment return expectations. It will put you in a better position to select the investment option or mix of investment options that are best suited to you.
Investing Your Money
An Investment Committee, appointed by the BUSSQ Board, makes recommendations to the Board about where BUSSQ members' money should be invested. The Investment Committee and the Board obtain professional investment advice from its investment consultant, Frontier Advisors. Assets are allocated within ranges set by the BUSSQ Board after advice from its investment consultant. The asset allocation ranges are the minimum and maximum amount we can invest in each asset class.
The Board reviews these ranges on a regular basis, and sets an allocation for each diversified option, known as a strategic asset allocation (SAA). The actual asset allocation can vary for the SAA at any time based on our outlook for the economy and investment markets.
Specialist investment managers are interviewed and selected for each of the asset classes. They are selected on a management and performance basis and they are required to report regularly to the Board. The investment managers are constantly monitored by BUSSQ.
BUSSQ invests your savings across eight main types of investments or asset classes:
- Shares (Australian and International)
- Property (Australian)
- Fixed Interest (or Bonds)
- Opportunistic Growth
- Opportunistic Debt
Cash: includes money invested in term deposits and bank bills where interest is earned on the cash invested, similar to having money in a bank account. Over the long term, cash is likely to produce the lowest return of all the main asset classes.
Shares (Australian and international): generally purchased through a stock exchange, when you buy a share you become part owner in the company that has issued the share. Companies issue shares to raise capital. As part owner, you are entitled to any company profits, distributed as dividends. As the value of the company rises or falls, due to performance, industry conditions and other factors, the value of your share also rises or falls.
Fixed Interest or bonds: are money lent to governments, semi-government bodies and corporations where interest is paid at an agreed rate for an agreed term. These investments can be held until they mature, with returns coming from the interest payments that are made. They are also commonly traded, with the price received for the investment reflecting the difference between the current interest rates and the interest rate and duration on the fixed interest investment. Fixed interest investments are generally fairly stable, however their value is affected by interest rate and currency movements.
Property (Australian): includes investments in land and buildings that can be bought, sold or leased such as shopping centres or office blocks. Returns on property investments are influenced by many factors including supply, demand and market conditions
Agriculture: encompasses farming and farming-related commercial activities such as livestock and timber and involves all the steps required to send an agricultural good to market i.e. production, processing, and distribution.
Infrastructure: these investments comprise of assets such as airports, seaports, roads, bridges, tunnels, utilities, power stations, windfarms and natural resources such as mines.
Opportunistic Growth: is a direct investment in a company which is not listed on a stock exchange. These type of investments are often made to expand or restructure the company, or for new product development.
Opportunistic Debt: works in a similar way to fixed interest investments, however the investments are generally in private corporate loans and not government or corporate bonds.
Investments in Shares and Fixed Interest can be made in Australia or overseas. In fact, the Australian share market accounts for less than 2% of the world share markets. When investing overseas, returns can also be affected by changes in the value of the Australian dollar. These changes can enhance overseas returns (when the Australian dollar is falling) or detract from overseas returns (when the Australian dollar is rising).