HAT are the differences between balanced options and growth options? Terms such as balanced and growth can be confusing but they are very important to understand.
When we talk about super, balanced and growth options are both referring to investment styles in superannuation.
All investments come with two types of risk: the risk of not retaining purchasing power over time due to the rising cost of living and the risk of losing money as investments fall in value.
In general, ‘safer’ investments that don't risk losing your capital have lower returns over time.
Whereas a ‘riskier’ investment, such as shares, has a greater chance of losing capital in the short term, but in the long term, should earn a much higher return.
As the name suggests, the balanced option is trying to achieve a balance between the risk of short-term losses and the longer term risk of having lower returns.
It does that by generally investing up to 70 per cent in local and overseas shares, infrastructure and property, with the rest invested in cash and fixed interest.
A growth investment option will generally invest up to 85 per cent in shares and property, while a conservative option will have 30 per cent in shares and property and a cash or capital guaranteed option will be fully invested in cash and fixed interest.
The chances of suffering an annual loss in the growth and balanced options are about five years in every 20, and zero for the conservative and cash options.
Choosing the right option is a matter of balancing the risk level you are comfortable with and the time left until your retirement.