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Level: Intermediate

Shares and your super

What are shares and why are they an important part of your super? Learn about the ways Rest uses shares to grow your super faster.
Puzzle pieces with dollar symbols.

What are shares?

Shares are units of ownership in a company. When you own a share, you are a part owner of that company. Many of Rest’s investment options invest in shares.

Shares can also be referred to as ‘stocks’ or ‘equities’.

Shares are often issued by companies to raise money from the investing public. The company gains funding and in return the investors become part owners (shareholders) who are entitled to a share of the profits (dividends) to come. This article focuses on shares that are traded on public markets, known as stock exchanges.   

Here are the key points we cover in this article:

Why invest in shares?

Owning shares provides investors with an opportunity to make money in two ways:

  1. Dividends – If a company makes a profit, they can choose to pay some or all of that profit to the shareholders as a cash payment called a dividend. They can also choose to retain the profit to reinvest back into the company.

  2. Capital growth – If the market value of a share increases, a shareholder can sell shares for a profit. 

Investment risks

All investments carry risk and shares are no different. Shares are categorised as a ‘growth’ asset which means it is an asset class aimed at increasing the value of your investment, but also has an increased risk of negative returns over the short term. 

They are rated as ‘High’ or ‘Very High’ on the Standard Risk Measure. The key risks when investing in shares is that:

  • returns are not guaranteed - there is no guarantee that shares will either pay dividends or increase in value; and

  • potential loss of investment - share prices go and up and down for a variety of reasons, so the value of your investment may decrease and it is possible to lose all of your investment.  

Shares have a good track record of strong growth

Shares also have the potential to earn high returns and historically have outperformed other traditional asset classes over the long run. Over the last 30 years (31 December 1992 – 31 December 2022), the average total return (growth and dividends) for listed shares (i.e. shares that are ‘listed’ on an exchange like the ASX) has been very positive as shown in the table below1: 

Average annual return for shares over the last 30 years (ending December 2022)

Source: Rest and Bloomberg, 31 December 2022. Unhedged, with dividends reinvested, before any taxes and costs.

Indices used are International Shares: MSCI World Excluding Australia Index, US Shares: S&P 500 Index and Australian Shares: ASX All Ordinaries Index

Over this timeframe shares performed better than listed property2, Australian Bonds3  and much better than cash (e.g. putting your money in a term deposit). However, it is important to remember that different asset classes have different risk profiles (e.g. investing in bonds or cash is generally a less risky investment than investing in shares) and that past performance is not an indicator of future performance and average returns are not guaranteed.

Additionally, these figures measure the return across an index meaning that this is the average return for all the companies listed in that index. It does not mean that the share price for each share listed on that market generated that return. In order to achieve a similar return over that period, you would likely need to have invested in a diversified portfolio of the shares in that market.

1. All returns are for unhedged indices. An unhedged index takes no steps to limit the effect of currency fluctuations on overseas investment returns.

2. Compared to the S&P/ASX 200 A-REIT Total Return Index. An index designed to measure performance of Australian real estate investment trusts (A-REITs) and mortgage REITs.

3. Compared to the Bloomberg Ausbond Composite 0+ Index. An index designed to measure the performance of the Australian bond market and includes investment grade fixed income securities issued by Australian Government, Semi-Government, and corporate entities.

Shares can be volatile

While the average return of 9.75% p.a. for Australian shares over 30 years probably sounds pretty good, there have been big swings in the performance of shares over this period. 

For example, during the last 10 years Australian shares had calendar year returns of -39% in 2008 and -7% in 2002, but they also returned +19% in 2021 and +21% in 2013.

To have a chance of receiving investment returns similar to 9.75% p.a. over this time frame, you would likely need to have stayed invested the whole time. 

Unfortunately, some people may have panicked when they got a negative return and sold their shares and their returns may have suffered as a result.

In hindsight it’s easy to say you wouldn’t panic, but remember negative returns almost always follow bad news. In the last three decades we’ve had:

  • the late 90s dot-com bubble;
  • September 11 terrorist attacks;
  • the second Iraq war;
  • the 2008 global financial crisis;
  • COVID-19; and
  • the Russian invasion of Ukraine.

Each of which had a substantial negative impact on share prices.

Staying the course is not easy…

Historically, shares on the whole have been a strong performer over the long-term and although past performance is not an indicator of future performance, an appropriately diverse portfolio of shares can provide an attractive risk-adjusted return for investors who have a long-term investment timeframe.

However, share prices can be volatile. This volatility increases the risk of negative returns if you’re only invested for a short time. For that reason, investing in shares is more appropriate for investors who have a long investment horizon and it’s usually a good idea to invest in a diversified portfolio of different companies, to help manage your exposure to economic downturns and poorly performing companies. 

Shares at Rest

The Rest investment options that invest in shares diversify across many different companies in different industries or sectors. That way, your super can look to enjoy the benefits of investing in shares over the long term, while managing the associated risks of any one company. 

For each investment option that has an allocation to shares, the recommended timeframe for investing is generally longer, the higher the allocation. This minimises the risk associated with shares over shorter timeframes.

Australian Shares

Many Australians are more comfortable with Australian shares. The ASX consists of many familiar, well-established names (also referred to as 'blue chip' stocks), such as Woolworths or Commonwealth Bank of Australia.

Australian shares can also offer tax incentives such as franking credits, where you receive a tax credit for tax which has already been paid by the company you own. This can help boost your total return and this is factored into your super balance if you’ve selected an option which invests in Australian shares.

Rest manages a portion of the Australian share portfolio internally. We also use the expertise of external fund managers. Each of these managers have their own style. We employ a range of different investment managers to diversify between different management styles and to take advantage of their different strengths.

Investors should note that the Australian share market only accounts for about 2.5% of the world’s share markets and is heavily concentrated in industries such as finance and mining. This means the Australian share market is less diversified than other share markets. A diversified portfolio is generally better prepared to manage risk in case some of the major industries in Australia don’t do well.

Overseas Shares

Overseas markets offer many opportunities for investors. Many of these companies would be very familiar to Australians as well, from the Silicon Valley tech companies you likely use every day like Google to the Japanese automobile manufacturers who make many of our cars. More variety offers more diversification which helps to manage risk. 

All of Rest’s structured investment options have allocations to both Australian and Overseas Shares. Rest’s Overseas Shares asset class also includes an allocation to private equity investments, where we invest in companies that aren’t list on the stock exchange.

Rest uses the expertise of external fund managers to find attractive overseas listed share investments. Again, each manager has their own style, offering different benefits. 

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