Indexed options are a low-cost, passively managed way to invest your super by tracking the performance of a market index, similar to the way you might invest in Exchange Traded Funds (ETFs) outside super. This video explains what indexed options are, how they work inside super, and the benefits and trade-offs to help you decide whether they suit your investment style.
Indexed options in your super
If you've heard of Exchange-Traded Funds or ETFs, you'll know they're a simple, low-cost way to invest.
But did you know you can get something similar inside your super?
It makes sense to be a bit curious about it - After all, your super will be growing in the background for decades.
So if you are curious, I'll explain what indexed options are, how they work in super, and whether they might be right for you.
What's a market index?
First let's start with what an indexed option actually is? Ever heard someone say “the market was up today” on the news and wondered what that actually means? They're probably talking about an index, which is a way to track how a group of investments is performing — all in one number.
Instead having to watch thousands of individual companies, an index bundles a selection of them together and gives you a snapshot of how that whole group is doing. A bit like a report card for the stock market.
So what does this mean for you? An Index gives you a quick, easy way to see the overall health of the market. If the ASX 200 is up 10% this year, it means those 200 companies have grown in value by roughly 10% on average.
And here's the really useful part - you can actually invest in an index through something called an index fund or option. It's a simple, low-cost way to invest in hundreds of companies at once, without having to pick individual stocks.
What is an indexed option?
An indexed option is a low-cost, passively managed way to invest. Instead of a team of fund managers actively picking and choosing investments, the indexed option simply tracks the performance of a market index. That means lower fees for you, and your money moves in line with the broader market.
Let's talk the options available for your super. For our accumulation members, we offer two indexed options, each suited to a different level of risk and growth. Both are simple, low-cost ‘diversified’ options - meaning your money is invested across shares, fixed income and cash.
The benefits and risks of indexed options
So now you know what Aware Super's indexed options are. But how do they compare to the other options available?
Before we get into that, it's worth knowing where most of our members super is sitting right now. Over 80% of Aware Super's accumulation members are invested in our default approach, called MySuper Lifecycle. If you joined Aware Super and didn't make an investment choice, this is most likely where your super is invested.
Indexed options are for members who want to make an active choice about how their super is invested.
The biggest advantage of Indexed options as an investment choice is cost. The fees are lower because there's limited active management team making daily investment calls. So more of your money stays invested and working for you.
They're also a simpler structure. You're invested in a broad market, and your returns will closely reflect how that market performs.
But there are a few trade-offs along with the benefits. Indexed options only invest in listed assets like shares and fixed income, so they're less diversified than, say, our Core or Socially Conscious options, which can also invest in unlisted assets like property and infrastructure. This means indexed options can experience bigger swings, both up and down, than other investment options that are not indexed. And when markets fall, there's no active investment manager stepping in to try to limit the downside. Indexed funds will go up and down in line with the broader market movement along with the broader market movement.
Does it suit your investment style?
Our indexed options tend to suit members who are comfortable investing over the long term and can stay invested through normal market ups and downs. They also tend to suit people who are comfortable with their returns moving broadly in line with the market, and who're comfortable with lower fees over hands-on risk management.
As always, the right choice comes down to your personal goals, your timeline, and how you feel about risk.
For more information you can review our Product Disclosure Statement,and Target Market Determination . If you have more questions remember our Aware Super's team is just a phone call away.
General advice only. Consider your objectives, financial situation or needs, which have not been accounted for in this information, and read the PDS and TMD at aware.com.au/pds before acting. Issued by Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340) trustee of Aware Super (ABN 53 226 460 365). Members can get advice about their Aware Super accounts at no extra cost, or advice on their broader needs for a fee.
Advice provided by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL 238430), wholly owned by Aware Super.
