Investment basics

Getting to know the basics of investing can help you to make better decisions on how to invest your super.

What is an asset class?

An asset class is a particular type of investment. The four main asset classes are cash, fixed interest, property and shares. These can be grouped into two types of investments – return-seeking assets and risk-controlling assets.

• Return-seeking assets - Return-seeking assets include shares and property. Sometimes called ‘growth assets’, these are higher risk investments with a greater possibility of a negative return over short periods than risk-controlling assets. This extra risk generally allows return-seeking assets to earn higher long-term returns.
• Risk-controlling assets - Cash and fixed interest are risk-controlling assets. You might see them also referred to as ‘defensive assets’. They are lower risk and less likely to experience a negative return than return-seeking assets. Their low risk nature generally results in lower long-term returns than return-seeking assets.

Risk and return

There is a trade-off between the level of risk you take and the level of investment return you can expect to receive. Read more…

How long are you investing for?

The term of your investment will affect the level of risk you are prepared to take. If you are investing for 10 years or more you may be prepared to take more risk than say, someone who will be taking all of their super in 2 years time. But don’t just consider how long you’ve got to go before you can access your super, because you could be investing and living off your super for 20 years or more in retirement!

Diversification

Investing in a wide range of asset classes is often referred to as ‘not putting all your eggs in one basket’, or diversification. Through diversification risk is spread across a range of asset classes so that if one type of investment falls in value, others that are performing well over the same period could offset (or exceed) that loss.

LGsuper further diversifies by investing through a number of carefully selected, well known and trusted professional investment managers who each have a specific area of investment expertise. By combining the skills of these managers, you can expect reduced risk and improved investment performance.