Should you invest 100% of your super into shares?


It’s highly probable that your super is invested across various asset classes, including bonds and shares. 

Nearly all investment professionals would argue that shares have the greatest probability of delivering the highest returns over the long term. 

This begs the question: why wouldn’t you consider investing 100% of your super into shares? 

How your super investment allocation is managed 

Most super funds offer various pre-mixed investment options like high growth, growth, balanced, and diversified. However, these names can be misleading because there are no strict rules governing their definitions across funds. For instance, what one fund labels as “growth” might be categorised as “balanced” in another fund. These names should be viewed more as general guides rather than precise indicators of investment allocation. 

Another popular option gaining traction is lifecycle investment strategies. Instead of you manually selecting an investment option, your super balance is automatically allocated based on your birth year. The fund adjusts the mix of assets depending on how many years you have until you reach the age of around 60, which is when you can typically access your super. For example, if you’re in your 20s, the fund might invest 90% of your balance in growth assets. As you approach your early 50s, this allocation might decrease to 70%.  

The traditional wisdom behind a diversified asset allocation    

In any financial planning textbook, you’ll find a strong case for adopting a diversified asset allocation. Harry Markowitz, a Nobel Prize laureate, pioneered this idea through Modern Portfolio Theory. The core principle is that spreading investments across various asset classes helps reduce portfolio risk and volatility. 

Firstly, diversification allows investors to smooth out returns by including assets that move in opposite directions (negatively correlated) or independently (uncorrelated). This means that in most years, some asset classes will perform well while others may not. By diversifying across many asset classes, the risk of experiencing a loss across your whole portfolio in any given year is reduced. 

Secondly, asset classes tend to move through cycles. For instance, during a bullish market, stocks may become overvalued while bonds might be undervalued. By maintaining a long-term asset allocation and rebalancing every 6-12 months, investors are forced to adjust their exposure. This involves selling asset classes that have become overvalued and buying those that are currently undervalued. 

I don’t disagree with this approach. However, super is unique because it’s locked away until you reach the age of around 60.  

What’s more important? Volatility or long-term returns?  

In practical terms, volatility is only a problem if you must sell your investments. However, for long-term investors who can hold onto their investments for many decades, volatility is insignificant. 

As a superannuation investor, you’re inherently a long-term investor because you cannot access super until age 60. For instance, if you’re 40 years old, you won’t be able to access your super for another 20 years at least. Therefore, this allows you to focus on maximising returns over the long run without being overly concerned about volatility. For example, achieving an average annual return of 9% over the next two decades would grow your super balance by 5.6 times compared to its current value. In this context, the ups and downs of the market (volatility) become unimportant. Long term investment returns are most important.  

The chart below sets out total investment returns over the last 30 years. It shows that bonds and cash offer lower returns, whereas shares and listed property have historically delivered higher returns over the long run. Given the long-term horizon of super investments, it begs the question: why would you invest your super in asset classes other than shares? 


Sidebar: One key insight from this chart that I want to emphasise is the notable outperformance of the US market and the relative underperformance of international shares. Over the past three decades, international shares have lagged primarily due to weak performance in the Japanese, UK, and European markets. However, I anticipate that this trend could reverse over the next 30 years. “How” your super is invested in shares is equally important, which I discuss below.   

Should you invest 100% of your super in shares?  

Yes, I believe there’s a strong case for putting your entire super balance into shares to maximise long-term returns. However, there are several important considerations to keep in mind. 

Firstly, the way you invest in shares matters significantly. For example, at the moment centration risk in the US market is a real concern. Currently, the top 10 companies in the S&P 500 make up more than a third of the index in terms of value, with seven of them in the technology sector. In fact, Nvidia, Microsoft and Apple now make up a record 21% of the index! While technology may continue to thrive, much of the potential gains from AI could already be priced into these stocks. Therefore, if you’re considering a 100% allocation to shares, it’s crucial to several employ rules-based, low-cost index strategies that mitigate such risks and capitalise on opportunities. Relying solely on market cap-weighted indexes comes with risk.  

Secondly, if you tend to be a nervous investor who checks their super balance frequently and worries about fluctuations, putting all your super into shares might not be suitable. The volatility of the stock market can lead to significant short-term fluctuations in your super balance, which could cause unnecessary stress. 

Lastly, if you anticipate needing to access your super within the next decade, an all-in approach to shares may not be appropriate. However, this depends on your individual risk tolerance and financial circumstances. 

It’s important to note that none of the information provided in my blogs is personal advice. There are numerous other factors to consider when deciding whether to invest your entire super balance into shares. 

Where does listed property fit in?  

You’ll notice that listed international and Australian property (REITs) have performed strongly over the past 30 years, with returns of 9.7% and 9.0% respectively. REIT indexes consist of companies primarily involved in owning and operating income-generating real estate. Many of these companies are also included in broader stock indexes such as the S&P 500 and ASX 200.  

Furthermore, REITs are typically cyclical investments, influenced significantly by factors like interest rates, inflation, and overall economic health. Considering this cyclicality, I don’t believe it’s essential for super investors to have specific exposure to REITs. 

In this blog, my focus is on the decision between investing super using a lifecycle or pre-mixed option versus putting 100% into shares. 

When do you alter your asset allocation?  

Typically, one might seek to reduce portfolio risk as you approach retirement. However, this depends on the investor’s risk profile, how much super they have, and whether they have other investment assets in addition to super. Some of my clients that are retired might only have 40-50% of their balance invested in shares whereas others have more than 80% invested in shares. It really depends on personal circumstances.   

What about gearing?  

I received a question from Matthew on my YouTube channel about whether young people should invest their super in geared ETFs (if you have a question for me, you can ask it here and subscribe to the channel). 

I would use the principles discussed in this blog to answer Matthew’s question. If you have a long investment horizon – meaning you won’t access your super for many decades – there can be merit in taking on more investment risk to potentially achieve higher long-term returns, such as through geared ETFs, which I recently discussed here

In theory, I believe that individuals in their 20s or 30s could benefit from gearing within super. However, there are two main practical considerations to keep in mind. 

Firstly, most wrap platforms impose limits on how much you can invest in any single ETF. Therefore, you wouldn’t be able to allocate 100% of your super into a geared ETF like GHHF unless you set up a Self-Managed Super Fund (SMSF). 

Secondly, internally geared ETFs tend to only use market cap-weighted indexes. I have discussed my concerns with these above.  

In conclusion, while I see merit in the idea of using geared ETFs for young investors, the current practical limitations make it challenging to implement effectively. 

Warning: this is against conventional wisdom  

Investing 100% of your super into share markets challenges traditional thinking.  

I doubt many financial advisory firms would recommend it to their clients, maybe because they are more concerned about their own risk of doing something that is different.  

But isn’t it our job to challenge conventional wisdom? 

One of a financial advisor’s primary goals is to maximise wealth for their clients’ retirement. As such, there is merit in considering whether their super should be invested 100% in the share market.  

I acknowledge that it’s not suitable for everyone, but for certain individuals, it could have a significant positive impact. 

Please seek personalised advice before you make any changes to your super.  

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