All investments are subject to varying risks and can change in value. There are risks in choosing to invest in superannuation and each investment option has different risk characteristics and volatility.
See Section 5:How we invest your money - At a glance: risk and return profiles www.hostplusexecutive.com.au
The most significant risks are:
- Risk that inflation may exceed the return on your investment - inflation
is measured by the Consumer Price Index (CPI). Where the CPI increases, money
has less purchasing power. When an investment provides a lower return than the
increase in inflation, it actually loses value in terms of purchasing power.
Therefore, it is important to invest in assets that are expected to generate
returns in excess of inflation over the medium to long term.
- Market risks - economic, technological, political or legal conditions and even market sentiment can change and affect the value of investments.
- Changes in interest rates - interest rate changes can have a
positive or negative impact on investment returns across each asset class.
- Overseas investment - if we invest in other countries there is a risk their currencies could change in value relative to our dollar and so, increase or reduce the value of the investment.
- Investment styles - when choosing individual fund managers, varying investment styles will perform differently depending on the markets and other factors.
- Risks associated with each individual investment - including the risk of financial loss. Individual investments can fall in value for many reasons. For example:
- Australian shares - inflation, interest rates and changes in market conditions will all have an effect on the value of shares, as does the performance of the company itself.
- International shares - the risks relating to international shares are the same as for Australian shares. There are also additional risks relating to exchange rates and currencies, and political risks associated with investing in that country.
- Property - returns on property rely on general economic factors such as inflation, interest rates and employment, as well as factors unique to the property such as its location and quality.
- Australian fixed interest - changes in interest rates in particular will have an impact on fixed interest investments so that, if interest rates change during the term of a loan, there could be capital gains or capital losses. Depending on the nature of the issuer of the investment, there is a varying level of risk that the borrower may default on repayment of the loan.
- International fixed interest - similar to Australian fixed interest but with additional risks associated with exchange rates and currencies, and political developments.
- Unlisted assets - the usual risks associated with investing (market risks, liquidity risks, credit risks and so on) plus many other broader risks confined to a certain strategy employed.
Each asset class and investment option has its own level of risk and return. Typically, the greater an investment risk, the greater its potential return over the long term.
It is wise to seek professional advice when making decisions about selecting and changing your investment options as each option has a different risk/return profile. Find out more about Industry Fund Financial Planning at www.hostplusexecutive.com.au
Other risks may also affect the accessibility or value of your investment with any super fund. These include:
- Liquidity risks - this refers to the ability to convert an investment into cash with little or no loss of capital and minimum delay. Some investments, such as direct property and private equity, are relatively illiquid. As such, the fund makes these investments for the long term and limits the exposure of any investment option to these sectors.
- Security specific risks - where an individual company or asset fails, for example through bankruptcy, fraudulent activity or the business environment in which it operates, the value of the investment can fall sharply.
- Derivatives risks - derivatives are used to reduce risk or gain exposure to other types of investments where appropriate. HOSTPLUS Executive does not generally invest directly in derivatives, however, the managers of some of our investments may do so in order to assist with the effective management and protection of HOSTPLUS Executive assets. HOSTPLUS Executive has a derivatives risk management statement to govern the use of derivatives and ensures that fund managers comply with the HOSTPLUS Executive risk policy.
- Market failure - There is a risk of broad market failure or significant financial collapse that affects investments broadly. Such events are outside the control of the Trustee. Consequently, even long term investors like superannuation fund members should be mindful of the risk that if such high impact events occur, their benefits may be less than the total amount of contributions invested.