Case Study(Super – Investing in Growth Assets)

Super - Investing in Growth Assets

Helen and Christian each want to invest $100,000 into superannuation. Helen chooses a conservative option with a projected earning rate of 6% pa. Christian is a bit more relaxed and opts for a growth-oriented option, which contains specific growth assets such as shares and property and has a projected return of 8% pa. While his projected return is higher than that of the conservative portfolio Helen has chosen, which invests mostly in cash and fixed interest, Christian’s choice involves more risk.

Because super is a long-term investment, Christian thinks he has plenty of time to ride out any ups and downs in the markets. He believes that growth assets are likely to be more effective in building a decent retirement nest egg and while there are some risks involved, he’s willing to accept short-term volatility in return for higher returns over the long term.

Helen and Christian ask their financial adviser to compare the two options. The adviser’s comparison shows that after 20 years Christian’s $100,000 investment would grow to $466,096 while Helen’s balance would be $320,714 . A difference of just 2% pa in performance resulted in Christian’s growth portfolio accumulating $145,382 more than Helen’s conservative portfolio.

An extra 2% pa could increase your wealth by around 50%
Notes

Source: Colonial First State. This chart is for illustrative purposes only and does not represent actual or expected returns for any particular funds. A change in one or more of the variables or assumptions listed will produce different results. Generally, the higher the potential return, the greater the risk of investment loss. This chart compares assumed returns of 6% pa and 8% pa (after fees and taxes) over 20 years on a starting balance of $100,000. Results are not adjusted for inflation. Please note that over long periods of time, inflation can substantially reduce the purchasing power of your money.

Disclaimer

These case studies are for illustrative purposes only. They are not to be taken as personal advice and are intended to provide general information only. They do not take into account your individual needs, objectives or personal circumstances. The information is based on Financial Wisdom Limited’s understanding of the relevant Australian laws at 17 November 2011. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Past performance is no indication of future performance. Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138.

This web page has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Financial Wisdom advisers are authorised representatives of Financial Wisdom.

Information in this web page is based on regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.

This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

Sound advice is the key to success

As you can see from these case studies, a carefully thought-out strategy could make all the difference to achieving your goals.

Roe’s Financial Services Pty Ltd offers knowledge, expertise and experience. We’ll take the time to understand your individual circumstances and retirement goals, and then recommend appropriate superannuation strategies to help you achieve them.

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