Greg Hall, Senior Portfolio Manager, Investment Strategy
We get a lot of questions about the differences between our new default investment option, QSuper Lifetime, and what was formerly the default option, the Balanced option.
If you think about it, the vast majority of any super fund’s members are invested in the default or ‘balanced’ option as it’s often called. The starting point for us was that surely a ‘one-size-fits-all’ approach to a default investment option can’t serve the best interests of all QSuper members. How can one investment strategy be suitable for such a broad cross section of people? This philosophy is the main point of difference between the two options.
In planning for retirement a common approach among financial advisers is to think about the amount of income you’ll need to live off when you’re no longer working. In a similar way, the investments that make up the Lifetime option are selected by taking into account the balance you could end up with at the point you retire and the level of income this could ultimately generate. It seems odd when you think about it from this perspective, but the typical balanced investment option doesn’t consider retirement income when selecting investments.
Projecting anyone’s retirement income makes the investment risks very clear. This leads to the next key difference with the Lifetime option, which is that it automatically adjusts your investment strategy as your age and balance change. It works by placing members into one of eight distinct groups, all of which have different investment strategies and objectives.
Generally the investment strategies across the Lifetime groups are structured so that those with a shorter time until retirement have a more conservative investment strategy than those further away from retirement and when compared to those invested in the Balanced option.
Typically people nearing retirement have higher super balances and are therefore closer to achieving a reasonable income in retirement. These members are invested in a more conservative strategy to protect the savings they’ve accumulated. However we also know that some members in this age range haven’t accumulated as much and may not be on track for a comfortable retirement. These members are placed in a group with an investment strategy designed to achieve slightly higher returns in an effort to ultimately reach a more reasonable level of income in retirement.
On the other hand, people in the Lifetime option that are early on in their working lives are invested in a more aggressive strategy than the Balanced option. This is to compensate for the more conservative strategies their funds will be placed in as they get closer to retirement. And given younger people have a longer time left in the workforce and generally have lower balances, the overall impact of short-term negative returns is less dramatic.
So there you have it - the main differences between the two options. In future blog posts we’ll talk in more detail about the Lifetime option and about our thinking around reaching an adequate retirement income.
The views of the author and those included in the responses to comments posted on this blog are not necessarily the views of QSuper. This information is for general purposes only. It is not intended to constitute advice and persons should seek professional advice before relying on this information.
Past performance is not a reliable indicator of future performance. Each of our investment options has a different objective, risk profile, and asset allocation.
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Senior Portfolio Manager, Investment Strategy
Greg is responsible for developing investment strategy and managing QSuper’s Alternatives portfolio, which include investments in infrastructure, real estate, private equity and incubator assets.