While volatility in investment markets cover both up and down moves in prices, it is naturally the big negative moves that capture attention. It is a rare investor indeed who is unhappy about sudden moves up.
It is the disconcerting sense of instability that flows from periods of significant market volatility that promotes the natural concern of investors.
The headline for 2016 so far may be that volatility is back – but in reality it never went away. Hibernated is perhaps a better description. Experienced investors understand that markets will go through different cycles. What is overlooked in the media commentary tracking daily market moves is that investment markets have been somewhat benign for the past three years with relatively smooth, steady growth.
Cast your mind back to December 2012 when you were doing your annual review of your portfolio’s asset allocation – perhaps with the help of a trusted adviser.
If the adviser had said to you that your growth portfolio (70 per cent in growth-oriented assets and 30 per cent invested in income-oriented investments) would deliver you a return of around 12 per cent a year would you have thought that was an acceptable outcome?
Certainly that is a pretty common asset allocation for most large super funds and according to the January report on fund returns from research group SuperRatings, super funds have delivered the fourth consecutive year of positive returns for members up to the end of December 2015.
The SuperRatings research report focuses on returns for the balanced option – typically the default offering of the fund – which covers investment options with between 60 per cent – 76 per cent invested in growth style assets.
On a rolling three-year basis, according to SuperRatings, the median fund returned 10.1 per cent after fees and taxes. Once again the question is if that had been offered to you three years ago, would you have thought that was a good outcome?
Apart from being a challenge on the memory front – some of us may struggle to remember what we were doing last December, let alone December 2013 – the key issue for investors is one of framing and context.
Superannuation savings are by both design and regulation long-term. So periods of volatility over a person’s working life and retirement are both inevitable and – just like periods of sustained growth – will not last forever. However, the impact depending on your age and lifestage can clearly vary significantly.
The clarity that comes with hindsight is far from a definitive guide as to how things will work out in the future. Yet there is still value in understanding the historical journey when it helps investors set realistic, long-term expectations that they measure their superannuation portfolio against.
 |
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. |
|
