Staying The Distance

Here is a textbook illustration of why a disciplined, long-term and diversified approach to investing makes much sense.

Super fund researcher SuperRatings has tracked how $100,000 invested 10 years ago in the median balanced super fund would have grown, excluding any contributions.

If invested on August 31, 2005, this is how the $100,000 would have fared:

October 2007: The fund’s balance would have reached its pre-GFC high of $131,923
Feb 2009: The fund’s balance would have fallen to its lowest point during the GFC of $98,907. (Keep in mind that this is just $1,093 less than the $100,000 initially invested.)
July 2015: The balance hit its post-GFC and all-time high of $181,322.
August 2015: The balance would have slipped to $176,478. (To put this in perspective, consider that this is $76,478 more than the amount initially invested, $44,555 above its pre-GFC high and $77,571 above its GFC low.)

Now let’s say the $100,000 was instead initially contributed to the super fund just a month later on September 30, 2005 instead of August. During September 2015, the balance would have slipped a little further to $170,579 – further, reflecting the downward volatility on the sharemarket.

The tracking of the $100,000 balance over a decade truly underlines the benefits of setting an appropriate long-term or strategic asset allocation for your circumstances. And it highlights the benefits of adhering to that allocation unless circumstances change and the allocation is no longer appropriate.

Just think about the predicament of a super fund member who, say, had become unnerved in February 2009 when the portfolio fell to its GFC low and moved into an-all cash portfolio.

Such a fund member would have most likely locked-in the fall in share prices and faced the task of getting back to an appropriately-diversified portfolio. It is, of course, extremely easy to miss out on a pronounced bounce-back in share prices.

And significantly, the long-term tracking of the portfolio of the median balanced super fund puts the intense sharemarket volatility of recent months into proper perspective.

Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia.

As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing our website content so it may not be applicable to the particular situation you are considering. You should consider yours and your clients’ circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This website was prepared in good faith and we accept no liability for any errors or omissions