The solid median return of large balanced super funds over the seven to 10 years to June 30 highlights once again why a disciplined, long-term approach to investing makes much sense – whether investments are held inside or outside super.
This basically involves setting an appropriate strategic or target asset allocation for diversified portfolio to spread risks and opportunities, and then adhering to that allocation (while still appropriate) through changing market conditions.
That’s a simplified version of several fundamental principles of sound investment practice. (See: Vanguard’s Principles for Investing Success.)
On the last day of 2015-16, super fund researcher SuperRatings estimated that the balanced portfolio* of the large super funds would produce median returns to June 30 of: 8.1 per cent p.a. over three years, 7.8per cent p.a. over five years, 8.2 per cent p.a. over seven years and 5.1 per cent p.a. over 10 years. (The researcher estimates that the median rolling one year return to 30 June 2016 was just 2.3 per cent: it’s been a challenging year.)
Keep in mind that the past decade encompasses the GFC, a generally testing investment environment post GFC and, over recent days, the initial highly-volatile response to the Brexit vote for the United Kingdom to leave the European Union.
Other research from SuperRatings, released in the final week of 2015-16 shows that the median balanced super portfolio was up by 86 per cent from its GFC low – measured from March 1, 2009 to May 31, 2016 – excluding, of course, the value of member contributions.
This recovery reflects, in part, the rewards of compounding (as earnings are earnt on past earnings as well as capital), portfolio diversification and just sticking the course with a selected asset allocation.
The research also illustrates the possible plight of an investor who lost his or her nerve in the depths of the GFC, switching from a balanced to an all-cash portfolio. (In 2008-09, the median balanced return was a negative 12.7 per cent.)
If this investor then stayed all in cash, the benefit of seven subsequent years of positive returns for the median balanced portfolio would been forfeited. And chances are that investors who later switched back from cash to a balanced portfolio would have missed out on returns when markets bounced.
Discipline and diversification are critical throughout changing investment environments.
*SuperRatings defines a balanced portfolio as one with 60-76 per cent of its assets in growth investments.
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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. |
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