A popular saying goes: ‘you can have too much of a good thing’ and that can definitely apply to choice. We all love having options but according to behavioural psychologists, having too much choice can make us feel overwhelmed and unable to make a decision. It’s a phenomenon known as ‘choice overload’ or ‘choice paralysis’.
This is demonstrated in Hicks’ Law, which examines the relationship between the number of stimuli present and an individual’s reaction time to any given stimulus. It was found that, the more stimuli to choose from, the harder it is for a person to decide.
Investment choice: how much choice is too much?
When it comes to investing your super, you’d think that having scores of investment options would be ideal, right? The fact is that when you have more options to choose from, it can often be harder to make a decision about your investment strategy.
According to APRA, as at October 2021 regulated super funds offer 568 choice products, with approximately 9,000 distinct investment options, so it’s not surprising that we may feel a little overwhelmed.
Research conducted by IndustrySuper Australia found that more than two-thirds of Australians would prefer fewer than 20 investment options for their super fund, and 58% want less than 10 options.
Strategies for overcoming choice overload
So with all the choice that is available to you in relation to investing your super, how do you go about making a decision?
Start with a clear investment goal – don’t get caught up exploring all investment options available to you - they may not all be relevant for you. Instead, let your investment goals guide your decision. Your investment goal should be your compass; you can check in from time to time over your investment journey and only change to align to you long term target.
Remain invested – expect come volatility along the way, don’t get caught chopping and changing investments - it’s always tempting to switch investment options, particularly during periods of volatility. Hold steady with your long-term investment plan and stay invested.
Don’t overlay too many investment options – pre-mixed or diversified options are allocated in a way to provide you with specific risk/return profiles which can help you achieve your investment return goal, but if you choose a few diversified options you may dilute your overall investment strategy.
Maritime Super’s investment options
Maritime Super offers a range of investment options (but not so many that you become overwhelmed!), each with their own mix of growth and defensive assets.
One of the key things you can do is get your investment strategy right, based on your investor profile. Your ‘investor profile’ defines your preferences when making investment decisions, which in turn will help you choose an investment strategy for your super. If you don’t think about your investor profile you may end up investing in an option that doesn’t suit you.
When determining your investor profile, some important factors to think about are:
- your timeframe, which is how long your money is invested, and can be short, medium or long-term. For many of us, our super is invested for a long time (between 20 and 40 years) – with such a long timeframe, we can afford to take on a little more risk than someone who is closer to retirement because there’s time to ride out any market downturns. In other words, the longer your timeframe, the more you can invest in growth assets which have historically delivered better returns over time.
- your appetite for risk, which determines how your super is invested. Risk and return go hand in hand: generally, the greater the potential return, the higher the risk. Remember that the further away you are from retirement, the more risk you can comfortably take on because there’s plenty of time to make up any losses and take advantage of the inevitable market upturns.
Once you’ve worked out your investor profile, you can choose which mix of growth and defensive options you’re most comfortable going with.
Remember, super is a long-term investment so it’s important to keep the end game in mind – for most of us, that’s a comfortable retirement with no money worries.
Call us if you have any questions about investments
If you’re unsure of your investment strategy and making decisions about your super investment, speak with one of our financial planners. They can help you work out the best way to invest your super, based on your situation and goals.
Call 1800 757 607 to speak with a financial planner.
The information on this page has been issued by Maritime Financial Services Pty Limited (MFS). It contains general information that doesn’t take into account your individual objectives, financial situation or needs. It’s important to consider how appropriate this general information is in relation to your situation before making an investment decision. We recommend that you seek financial advice before making any decisions regarding your super or investments. The information on this page is current at the time of publishing.