Risk and return

Investment is about earning a return on your money. It's a balancing act between creating wealth and protecting what you've already built up.

When we’re talking investments, we hear a fair bit about ‘risk’ and ‘return’. But what do these terms really mean for your money?

Higher Risk Higher Return Chart

What's a risk?

Risk usually refers to volatility – how often and how dramatically the value of an investment moves up and down.

What's a return?

Return refers to the change in value of an investment. Returns can be positive (an increase in value) or negative (a decrease in value).

The relationship between risk and return

Generally, investment options that provide potentially higher returns also carry more risk. On the other hand, assets with lower risk normally provide lower returns. Focusing too much on low risk can lead to lower returns and a lower chance of an adequate balance at retirement.

For example, shares can dramatically rise and fall in value, so the risk is higher. Whereas cash in a bank account doesn't change much in value, so it's a low-risk investment.

It’s almost impossible to avoid risk altogether, but its impact can be minimised. The best way to minimise investment risk is through diversification. For example, investing in a mix of different types of investments, known as asset classes.

Diversification is about not having all your eggs in one basket.

All investments have some risk, including super

Investments may experience fluctuations and volatility. Returns will go up and down over time and the value of investments will vary. Therefore the value of your super may go up and down.

When considering your super, it's important to understand that:

  • the value of your investments will vary
  • the level of returns will vary, and future returns may differ from past returns
  • returns aren't guaranteed and you may lose some of your money
  • legislation may change in the future
  • the amount of your future super savings, including contributions and returns, may not be enough to provide adequately for your retirement
  • the level of risk you're prepared to take will vary depending on a range of factors including:
    • your age
    • your investment time frames
    • where other parts of your wealth are invested
    • your risk tolerance

Standard risk measure

Our investment options have been assessed using the standard risk measure to make it easier for you to choose the most suitable option or options for you. The standard risk measure is based on industry guidance and allows you to compare investment options.

Risk band Risk label Estimated number of negative annual returns over a 20-year period
1 Very low Less than 0.5
2 Low 0.5 to less than 1
3 Low to medium 1 to less than 2
4 Medium 2 to less than 3
5 Medium to high 3 to less than 4
6 High 4 to less than 6
7 Very high 6 or greater

We’ve rated each of our investment options by its risk level, depending on the number of years in which you could expect a negative return over a 20-year period.

The default Tasplan OnTrack® option changes asset allocation on your 50th, 55th and 60th birthdays to reduce investment risk as you approach retirement age.

Option Risk amount Estimated number of negative annual
returns over any 20-year period
Cash Low 0.5-1
Conservative  Low to medium  1-2
Fixed interest Medium 2-3
Moderate  Medium  2-3
Balanced  Medium to high  3-4
Property  High  4-6
Sustainable High 4-6
Growth High 4-6
International shares  High  4-6
Australian shares High 4-6
Long-term Medium to high 3-4
Tasplan OnTrack
See below See below

The risk level for each Tasplan OnTrack stage is set out below.

 Option Tasplan OnTrack stage Risk amount Estimated number of negative annual returns over any 20-year period
Tasplan OnTrack    Maintain Medium to high 3-4
Control Medium to high 3-4 
Sustain  Medium to high 3-4 
Build  High  4-6 

We based the ratings on assumptions as at 1 July 2020. They:

  • include investment return forecasts
  • are after taking off investment management fees, but not administration fees
  • include the impact of tax (ignoring the impact of franking credits)
  • reflect their potential to avoid short-term negative returns
  • may change over time in terms of their strategic benchmarks (asset allocation) and long-term return assumptions.

Learn more about our Super investment options.

Learn more about our Pension investment options.

How much risk are you comfortable with?

The level of risk you're prepared to take is a personal decision and may be quite different to that of your workmates or friends. It’s dependent on your own preferences and individual circumstances.

Considerations should include not only your tolerance for short-term fluctuations, but also your longer-term aims and goals.

Try our Risk profiler

Answer six quick questions and our Risk profiler will show you which investment options to consider.

Try it now