Asset classes: the risks and returns
We invest your super in a range of investments across different asset classes. To help you understand more about how your super is invested, we’ve created a summary of each type of asset, including the level of risk and return you might be able to expect for each type.
Please remember that an asset class that has performed well in the past may not always perform well in the future, and vice versa.
Companies issue Shares (also known as Equities) to raise money to grow the company with the intention to earn profits. When you own Shares, you generally receive a portion of the company’s profits which you might get paid as dividends.
The price of Shares fluctuates as stock markets move up and down. This means:
- In the past, Shares have shown the highest returns of all traditional asset classes over the long term
- Shares are a high risk type of asset compared to Cash, Fixed Interest or Property
- The performance of Shares depends on the performance of Australian and overseas stock markets which go up and down regularly. Shares can even give negative returns over the short term
At GESB, we invest in Shares traded on Australian and overseas stock markets.
Private Equity represents an ownership stake in companies which are not traded on a public stock exchange. These can include start-up companies but are usually more established firms. The money invested could be used in a range of ways, including buying other companies, launching or expanding newer companies (venture capital) and growing existing companies (growth capital). In terms of risk and returns:
- Private Equity investments are usually expected to achieve higher returns than traditional assets such as Shares or Fixed Interest
- This asset class can carry higher risks than listed Shares and the investments tend to be illiquid. This means the investments might not be traded as quickly as other investments such as Shares
- There’s also a higher risk because Private Equity can be volatile and might involve investing in companies that might have higher levels of debt, are in the start-up phase or are smaller than companies which are usually listed on a stock market
Private Equity investments are useful in building a diversified portfolio with a mix of other asset classes. We invest in Private Equity by investing in unlisted Australian Shares, unlisted International Shares and certain types of unlisted Property and Debt.
Property investments allow investors to directly or indirectly own land and buildings through listed and unlisted Property trusts. Indirect investment provides ownership of these types of assets. Property assets can include retail (such as shopping centres), industrial (such as warehouses and factories), office properties, hotels and housing. Compared to other asset classes:
- Over the long term, Property has historically appeared to be slightly less volatile than Shares and can bring medium-to-high returns
- In the short term, Property has medium-to-high levels of risk and can be volatile as property markets change
- When Property investments are listed on a public stock exchange, they can be as volatile, or in some instances more volatile, than Shares
We invest in listed Property trusts that trade on the Australian and overseas stock markets, and unlisted Property trusts that are not traded on stock markets. We do not invest in direct property assets.
Infrastructure represents physical facilities needed to support the operation of a country or economy, for example roads, transport, utilities, airports and buildings. The risks and returns depend on the type of project but in general:
- Infrastructure aims to generate low-to-medium returns over the long term
- Infrastructure investments are generally less volatile than asset classes such as Shares, but the risk is still considered to be medium-to-high
We invest in a range of Infrastructure assets which can include unlisted portfolios of Australian and overseas Infrastructure assets and listed Infrastructure investments which are traded on Australian and overseas stock markets.
The broad range of asset classes and strategies in this category means that the risk and return characteristics of Alternative Investments vary widely, but in general:
- Alternative Investments can be more complex and less liquid compared to the traditional asset classes
- The risk profile is usually considered to be moderate-to-high
We invest in a range of Alternative Investments.
We distinguish between lower risk ‘Defensive’ Alternatives and moderate to high risk ‘Medium Risk’ Alternatives for asset allocation purposes.
This type of asset can include bonds, floating rate debt investments and portfolios of assets such as mortgages. Fixed Interest securities are used by Governments and companies to raise money. These securities are structured like a loan between the owners and issuers of the securities.
As an investor, we would generally receive regular interest payments from the issuer at a pre-determined or inflation-linked interest rate, plus a lump-sum repayment of the principal at the end of the term. Compared to other asset classes:
- Fixed Interest securities and loans can be bought and sold by investors, so market prices can fluctuate because of various market forces
- Fixed Interest securities and debt investments have been shown to produce lower returns than Shares over the long term, but are often less volatile
- In general this asset class has a lower level of risk, but this really depends on the nature of the debt issuer and of the debt securities themselves
We invest in a range of Fixed Interest securities, including those with fixed or floating rates and inflation-linked interest rate securities issued by Australian and overseas governments, corporations and asset-backed investment vehicles.
Cash investments can include assets known as at-call and term bank deposits, bank bills, and investments in short-term debt securities issued by governments, banks and other highly-rated corporations. In terms of risk and returns:
- In the past, Cash has produced the lowest long-term returns of all asset classes
- Cash generally offers the highest level of stability in the short term
- Cash tends to have a lower investment risk level with fairly stable returns
We invest in a range of bank deposits and short-term debt securities issued by Australian governments and corporations.
Find the right investment plan for you
Visit our investment mix explained page for details on how these asset classes influence the investment plan you are in.
To find out which investment plan (and mix of asset classes) you have now, simply check your Member Statement or login to Member Online. Once you know this, you can:
- Use our Retirement planning calculator to learn how much super you may need and what difference changing your investment plan could make
- Look at the past performance of the investment plans and just keep in mind that nobody can know exactly how assets will perform in the future
You can change your investment plan through Member Online.
Find out more
If your situation is complex, we recommend that you seek personal financial advice.
Thank you for printing this page. Remember to come back to gesb.wa.gov.au for the latest information as our content is updated regularly. This information is correct as at 21 January 2019.