Managing investment expectations

Managing investment expectations 15122015

We’ve made some changes to the structure of our investments to better leverage the current environment and expectations for returns over the long-term.

For some time now we’ve spoken about sustained low interest rates here and across the globe, the impact they’ve had on other types of investments and the likelihood of low returns remaining the norm for many years to come.

Recently the Reserve Bank of Australia and Australian Treasury confirmed persistent below-par economic growth, a slowdown in population growth and very low global interest rates are likely to stay with us for at least the next decade.

If this is so, it will potentially challenge many investors, especially those used to the relatively high-returns of the past, unless they reassess their expectations and plans for the future.

LGsuper is prepared for the challenge ahead. For us, super is a long-term investment and over the long-term we aim to produce solid returns to help you achieve your financial goals in retirement. Like many in the industry, we’ve actively undertaken a review of our investment approach and appetite for return and risk in light of the current landscape and outlook.

This resulted in a number of investment changes designed to better reflect and manage return expectations and at the same time avoid exposing your investments to greater risk in order to protect your account and improve performance.

What are the changes?

Specifically, we’ve adjusted strategic asset allocations and ranges, set clearer and more realistic investment targets, aligned all negative return expectations with the current investment landscape and outlook, and updated risk labels to reflect the trade-off between return and risk. All changes are detailed below.

Strategic asset allocations (SAAs)

Exposure to Australian and international shares across LGIAsuper’s MySuper Lifecycle and ready-made options has changed. You’ll see an increase in the percentage allocated to international shares and reduced exposure to Australian shares. Additionally we’ve adjusted the SAA ranges for all options. The Socially Responsible Balanced option SAA has also changed. Strategic asset allocation changes are designed to improve diversification and lead to better investment performance outcomes. Learn more about our investment options.

Negative return expectations

In response to the current low-return environment, outlook for the years ahead and advice provided by LGIAsuper’s asset consultants we have reviewed and adjusted our negative return expectations. This means there is a slightly greater possibility of negative returns in the long-term across all options, with the exception of Cash. For example, negative return expectations for Diversified Growth will change from 3.7 to 4.2 years over a 20-year period. Learn more and compare investment options

Return targets

LGIAsuper sets investment objectives for all investment options and expects to meet or exceed these between half and two thirds of the time. While our current performance is in line with objectives and expectations, given the long-term outlook we have set clearer and more realistic targets by reducing our CPI targets by 1% across our LGIAsuper MySuper Lifecycle option, ready-made options and Property.

New risk labels

Some of the changes made to the return targets and negative return expectations have impacted the level of risk associated with our investment options. New risk labels apply to LGIAsuper’s MySuper Lifecycle option, ready-made options and Diversified Fixed Interest option. Learn more and compare investment options.

Rethinking your future?

All investors regularly do. Perhaps it’s time to review your super, current investment choice, expectations for future returns and the level of risk you’re prepared to take to achieve your financial goals.

Remember, investments are designed to deliver a return, and the return is driven by the level of risk taken. Lower risk investments generally mean lower returns, while investments with a higher risk can result in higher long-term gains.

The key is to strike a balance between return and risk to suit your own investment objectives and to diversify by spreading the risk and your money across different types of investments to minimise the impact of volatility.

Read more from the investment section of our website.

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