Investment risk

Risks to consider

There are various types of risk associated with investing in a super fund and these can be broadly categorised as either investment or general risk.

Investment risk

Investment risk is the degree to which returns go up and down in value over time. You cannot consider return without risk and, generally, the higher the potential return, the higher the risk. In order to achieve higher returns you must be willing to take on more risk. While shares, property and fixed interest securities might offer higher long term returns than cash, they also expose you to higher levels of risk, particularly in the short term. If you try to avoid risk altogether you may in fact not save enough to provide you with the lifestyle you want in retirement.

Types of investment risk to consider

‍Inflation – The risk that inflation may exceed the return on your investment. This means that the purchasing power of your investment will be reduced over time.

Market risk – The risk that the performance of the market as a whole will affect the investment option’s returns. The market can be affected by economic, technological, political or legislative conditions, world events and even market sentiment.

Individual investment risk - The risk that individual assets fall in value as a result of changes in the internal procedures or management of a fund or entity in which BUSSQ invests.

‍Interest rate – The risk that changes in interest rates can impact directly or indirectly on investment returns.

Currency – The risk that changes in the value of currencies can affect the return on overseas investments. A rise in the Australian dollar relative to the currency in which the asset is invested may result in a fall in the capital value of your overseas asset.

Longevity - The risk that you live longer than your savings can provide for you financially in retirement.

Derivatives – BUSSQ’s investment managers may use derivatives to manage risk or gain exposure to other types of investments.

The risks associated with derivatives include the value of the derivative not moving in line with the underlying asset, reduced liquidity, the risk that payment obligations cannot be met when due, and counterparty risk if the other party cannot meet its obligations.

‍Regulatory - The risk of changes in government policy or legislation which may affect your ability to access your benefits. For example, amendments to the treatment of superannuation interest of members in family law matters means that your super benefit may be split with your spouse in the event of your divorce or permanent separation.

Timing – The risk that you may try to time the market and buy low and sell high. This will increase the volatility of your investment and increase the risk. Most people cannot successfully time the market.

Liquidity – Some investment options may have exposure to less liquid assets such as property, infrastructure and agriculture. BUSSQ manages this risk by monitoring liquidity through regular reporting from its investment consultants and by holding enough cash to meet most short term requirements.

General risk

There are general risks that apply to all superannuation funds. These risks are separate from investment risks and may affect the operation of the fund, the value of your account, the benefits available to you, the fees and costs you pay, your insurance cover, or the way your superannuation is managed. These risks do not mean that a particular event will occur. However, they are important to understand because they may affect your superannuation over time.

Types of general risk to consider

Operational and service provider - Operational risk is the risk of loss, disruption or error arising from the operation of the fund. This may include events such as cyber security incidents, privacy or data breaches, system failures, administration or processing errors, unit pricing errors, fraud, or other disruptions to the normal operation of the fund. The fund also relies on a range of external service providers. These may include administrators, insurers, custodians, investment managers, technology providers, professional advisers and other suppliers. There is a risk that the actions, omissions, financial position, systems, processes or performance of an external provider may affect the operation of the fund. We have controls and oversight arrangements in place to manage these risks. However, operational and service provider risks cannot be removed completely. If an issue occurs, it may delay transactions, affect account balances, require corrections to be made, or affect the services available to members.

Changes to fund arrangements - The arrangements that apply to the fund may change over time. This may include changes to our Trust Deed, governing rules, policies, fees and costs, investment options, insurance arrangements, administration practices or member services. Any changes may affect your account, the benefits available to you, the cost of your membership, your insurance cover (if applicable), your rights and obligations, or how the fund is managed.

Legislative and regulatory - Superannuation is affected by changes in law, regulation and government policy. These changes may affect how superannuation is taxed, how much can be contributed to super, when and how you can access your benefit, insurance arrangements within super, disclosure requirements, or the way superannuation funds are regulated. Legislative or regulatory changes may apply immediately or from a future date and may affect different members in different ways, depending on their circumstances.

Think about your investment time frame

‍Your investment time frame is the period between the day you begin to invest and the day you will need to use your super to live on in retirement. This period becomes very important when choosing your investment option or mix of options.

Remember, your investment time frame may not necessarily end at retirement. After retirement, at say age 60, the average person can expect to live at least another 20 years†. So even if you only have a short time until you retire you should consider the investment option or mix of options that will best meet your particular needs well into retirement.

If you don’t intend to access your money for a long time, you may be willing to accept the ups and downs in values that are associated with a higher risk option or mix of options. This could maximise your expected return over the long term. The longer your investment time frame, the more time you have to ride out the ups and downs. If you have a short time frame then stability in the value of your investment may be more important to you.

Understand your tolerance to risk

Your tolerance to risk is an important factor to consider before making your investment choice. Everyone has a different tolerance to risk and you need to be comfortable with the level of risk that is associated with the investment option or mix of options you choose.

Diversification helps reduce risk 

Because you can't know how each asset class will perform in the future, spreading investments across a range of different asset classes can help smooth the ups and downs in returns. This is known as diversification.

The risk and return profile of each investment option depends on how the assets are allocated and specifically, the balance between growth and defensive assets. Investment options that have a higher amount invested in growth assets, have a higher risk profile, but also the potential for higher returns over the longer term.

Measuring risk

‍A Standard Risk Measure (SRM) for investment options has been developed for super funds to make it easier for you to compare investment options (both within and across super funds). The SRM is designed to allow you to compare investment options that are expected to deliver a similar number of negative returns over any 20 year period.

There are seven risk bands:

The SRM is not a complete assessment of all forms of investment risk, for instance it does not include details of what the size of a negative return could be or the potential for a positive return to be less than you may require to meet your objectives. Further, it does not take into account the impact of administration fees and tax on the likelihood of a negative return.

You should still ensure you are comfortable with the risks and potential losses associated with your chosen investment option(s).

The use of the SRM is endorsed and strongly recommended by the Australian Prudential Regulatory Authority (APRA), Australian Securities and Investments Commission (ASIC), Association of Superannuation Funds of Australia (ASFA) and the Financial Services Council (FSC) for all Australian super funds.

Want more information?

If you would like to check the risk factors and investment objectives for the BUSSQ investment options you’re currently in, you can see this information on our investment options page.

If you have any questions or would like further information, please call us on 1800 692 877. As a BUSSQ member you have access to personal financial advice on investment choice at no extra cost^.