Emotion and investing shouldn’t mix

It was one of those somewhat good/bad stories from Jeff Bresnahan, managing director of SuperRatings, a superannuation ratings agency.

Bresnahan released SuperRatings’ latest performance survey in November that underlined how much the GFC and its lingering aftermath have eroded the medium and longer term returns of balanced super fund portfolios.

(SuperRatings classifies funds with 60% to 76% of their portfolios in growth assets as balanced.)

To the end of October, the median balanced super portfolio produced annualised returns of a negative 2.93% over 3 years and positive returns of 3.72% over 5 years, 6.52% over 7 years and 4.96% over 10 years.

These after fees, after tax returns are unquestionably disappointing. However it should be said that the 6.52% over 7 years is ahead of the general performance target used by many large super funds. (Most balanced funds aim at a longer term return of 3% to 4% above inflation.)

Bresnahan adds a somewhat good news interpretation on these returns: “On effectively the 3rd birthday since the onset of the GFC, Australians (in the median balanced fund) have seen their super (balances) climb to within 7% of their pre-GFC highs.”

His mention of the 7% figure seems to truly highlight the case for setting an appropriate strategic or long term asset allocation and sticking with it. This is opposed to allowing emotions to drive our investment decisions and encourage us to try and time the market.

An extreme danger during the bear market low was any temptation to switch to an all cash portfolio, thus locking in losses.  

As behavioural economists warn: Emotion and investing shouldn’t mix.

The above article has been sourced from Vanguard Investments Australia Ltd.

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.