Investment Basics

Simplify not mystify. The basics of investment

When it comes to risk versus return, you may like more risk, or prefer to play it safe. It’s up to you.

SMARTpension has a range of investment options with varied risk and return profiles. These options cater to the various investment horizons and risk appetites that you can explore.

Behind the investment options, the Trustee has a robust investment framework designed to maximise your returns, and minimise your investment risk, while keeping down associated management costs.

Topics we cover include:

Balancing your risks and returns

Risk and Return

Markets move. Markets go up and down. History tells us that there is a strong link between investment risks and investment returns.

Generally, investments that provide higher returns over a long period are more likely to fluctuate in value over the short term.

Investment risk refers to these fluctuations and the chance that your investment may go down in value and be worth less when you access it earlier than expected.

This is why it is important to understand your own investment horizon and how long you intend to work. The impact of short-term investment risk is typically reduced as investment horizons increase.

Asset class

Examples

Features

Growth assets

International and local shares, property, alternatives

Higher levels of short-term volatility / investment risk

More likely to deliver higher long-term performance

Suited to long-term investment

Defensive assets

Cash, international and local bonds

Lower levels of short-term volatility / investment risk

More likely to deliver lower long-term performance

Suited to short-term investment

Looking at your options

When it comes to risk versus return, you may like more risk, or prefer to play it safer. It’s up to you.

SMARTpension has a range of investment options with varied risk and return profiles. These options cater to the various investment horizons and risk appetites that you can explore.

Behind the investment options, the Trustee has a robust investment platform designed to maximise your returns, and minimise your investment risk, while keeping down associated management costs.

Setting strategies and objectives

If you look at the Definitions of SMART pension's investment options, you will see they define:

a rate of return (such as “at least 4.5% a year above CPI”) as an objective
an expected level of risk (such as “a negative return approximately once every four years”).

SMARTpension has developed investment strategies that outline the broad processes used to manage the investment portfolio as a whole and the risks associated with the various asset classes into which SMARTpension's investment options invest.

The investment strategy for each investment option includes an asset allocation range for each asset class.

Diversification

Investment professionals work to strategically increase returns and lower risk.

Where appropriate, SMARTpension invests with a number of different managers with each manager having a complementary but not matching investment style to ensure a spread of investment risks. This is known as diversification and assists especially in managing market risk typically associated with growth type assets.

The investment managers have discretion to invest in a full range of assets, both Australian and overseas, including shares, property and fixed interest securities. They are also allowed to use derivatives (such as futures and options contracts) for hedging and speculative purposes. This is designed to protect SMARTpension members against adverse movements in investment markets.

Active management

SMARTpension reviews each investment manager regularly. This involves looking at their investment style, resources and organisational strength, and assessing whether their performance has met the Funds' objectives.