Provision Newsletter

There are plenty of good reasons why Australian investors feel more comfortable investing at home. Investing overseas is unfamiliar. Foreign exchange movements often feel like too much of a risk. Overseas companies can be difficult to get information on. Sometimes they operate in different languages.

It’s understandable that we prefer investing at home but this preference often comes at the cost of returns.

Home bias – as it’s called – affects many local investors. In fact, three in four Australian share investors hold only Australian shares.

It’s a problem not just because of the small size of the Australian market, which is less than 2 per cent of global market capitalisation, but also because it creates a natural bias in portfolios against certain industries and in favour of others.

The local securities market is heavily weighted towards banks and resource companies, so they will naturally make up a large portion of many investors’ portfolios unless they have taken active steps to avoid it. Compared to the world’s largest market, the United States, Australia is low on big tech, communications and healthcare, leaving many investors underexposed to those important industries.

It matters because it can impact performance.

Whilst Australian shares have provided investors with significant aggregate returns over the last thirty years, when compared to other major asset classes on a year by year basis, they have actually been the top performer in only three of those years, and were the lowest performing asset class twice during this same period.

So what’s the alternative?

One option is investing directly overseas by buying shares on a foreign securities exchange. It gives an investor direct exposure to foreign shares and these days is cheaper and easier than ever. But it remains more costly than investing at home and normally comes with tax implications that can be complicated and could necessitate paying for expert advice.

The big Australian companies that operate globally are also sometimes seen as way to effectively reduce exposure to Australia. Miner, BHP, earns around half of its revenue from China, so buying BHP shares exposes an investor to the fast-growing Chinese economy.

But they are a small group of companies, mostly in the mining, oil and gas and health sectors, and investors still end up with an overly concentrated portfolio. Australian companies also have a patchy record overseas – although some of the current crop are indeed superstars.

A better alternative is a managed investment, which can offer access to a basket of international companies in one purchase. A range of exchange traded funds track international share indexes – and some are actively managed.

Listed investment companies and the newly emerging listed investment trusts offer similar options while a vast range of unlisted managed funds are also available.

The key to success is diversification – buying a portfolio of hundreds or thousands of companies around the world eliminates home bias and reduces the resulting risk by reducing your exposure to a single event, company, industry or country.

Unfortunately, as a nation we’re still not listening to that message.

The ASX conducts a biennial study into investor behaviour. The last study, in 2017, surveyed 4000 people. One of the headline findings was we are still not very well diversified. The study also found many of us don’t really even understand what diversification means.

Three-quarters of us hold only Australian shares, but almost half (46 per cent) claimed to be diversified even though they held less than three investment products.

Source : Vanguard November 2019 

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

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 this material so it may not be applicable to the particular situation you are considering. You should consider your 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 material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

What types of life insurance are offered by super funds?

Super funds typically have three types of insurance for members:

• Death cover (also known as life insurance) – is part of the benefit your beneficiaries receive when you die, either as a lump sum or as an income stream.

• Total and permanent disability (TPD) cover – pays you a benefit if you become seriously disabled and are unlikely to ever work again.

• Income protection (IP) cover – pays you an income stream for a specified period if you can’t work due to temporary disability or illness.

Your employer’s default super fund will generally provide you with death and TPD cover. This basic cover may be available without health checks. You can usually increase, decrease, or cancel your default insurance cover.

Your super fund’s website will have a product disclosure statement (PDS) which explains the insurer they use and details of the cover available.

Like other insurance policies, you will pay insurance premiums. If your insurance is through your super fund, the premiums are deducted from your super account balance.

Cancellation of insurance on inactive and low balance accounts

Super funds will cancel insurance on:

• inactive accounts that haven’t received contributions for at least 16 months

• accounts with balances less than $6,000 from 1 April 2020.

Your fund will contact you if your insurance is about to end.

If you want to keep the insurance, you must tell your super fund or make a contribution to that account. You may want to keep your insurance if you don’t have any through another fund or insurer and you have a particular need for it (e.g. you have children or other dependents or work in a dangerous job).

Insurance for people under 25

From 1 April 2020, insurance will not be provided if you’re a new super fund member aged under 25 unless you:

• write to your fund to request insurance through your super

• work in a dangerous job – your super fund will give you the option to cancel this cover if you don’t want it.

Why get life insurance through your super?

There are benefits in getting your life insurance through super:

• It’s often cheaper because super funds purchase insurance policies in bulk

• You can get the cover you need for you and your family, even if money is tight

• It’s easy to manage because premiums are automatically deducted

• Some funds automatically accept you for cover without requiring a health check

• You can usually choose the amount you want to be covered for

However, you also need to be aware that:

• Limited cover – The types of insurance, and level of cover, may be limited. Cover is not tailored to your circumstances and exclusions may apply. If you want more insurance, you can apply to increase your cover and a medical may be required. If you want a different type of cover, you may need to get this outside super. Check the PDS carefully.

• Not portable – If you change super funds; have an extended absence from your employer; your employer’s super contributions stop or your account balance drops below a certain amount, your cover may cease and you could end up with no insurance. Always read the information sent to you by your super fund as they may be alerting you to changes to your cover.

• Slower to pay – There can be delays in receiving benefits as the insurer pays the benefit to the fund first, who then distributes it to you or your beneficiaries.

• Who gets paid – If you do not make a binding beneficiary nomination, or your fund does not offer binding nominations, the super trustee will decide who gets your benefits when you die, although your nomination will be taken into consideration.

• Ends at around age 65 – Life insurance coverage through super ends when you reach a certain age (usually 65 or 70). Policies outside of super may cover you for longer.

• Reduces super balance – The cost of insurance premiums are deducted from your super balance, reducing the money available for your retirement.

• Multiple super accounts – If you have more than one super account, you may be paying premiums on multiple insurance policies. This could reduce your retirement money, especially where you can only claim on one policy. Find out if you are able to claim on more than one policy, and consider which policy you might cancel. Even if you can claim on more than one policy, consider whether you need more than one policy or whether you can get enough insurance through one fund.

• Premiums may increase when you change jobs – Even if you stay with the same super fund when you leave your employer, you may be moved to the personal division of that fund which could increase your premiums for the same cover. Some funds default members as smokers or blue-collar workers when they move between divisions of funds, which could significantly increase premiums, and further reduce your retirement money. Check your annual statement to see how you have been classified, and contact your fund if you think the incorrect classification has been given to you.

You may opt for some cover through your super fund, and some cover directly from a life insurer, depending on the cost and the type of cover you need.

How to check the insurance you have through super

To find out what life insurance you have with your super, either call your super fund, check your annual super statement or access your super account online to check:

• what type of insurance cover you have

• how much cover you have, and

• how much you are paying for the cover. 

You should also find out how your super fund is calculating your insurance premiums. For example, if your super fund has classified you as a smoker or blue collar worker, and these risk characteristics aren’t relevant to you, you could be paying more for your insurance than you need to.

You may need to call your super fund to check how you’ve been classified as your annual statement may not provide this detail.

What if you have no insurance through super?

If you discover that you have no insurance through your super fund, and you think you should have cover, call your super fund to find out why and discuss your options.

Claiming on insurance through super

There are some important things you need to know if you’re making an insurance claim through super.

Making a claim

To make a claim for insurance through your super fund you will typically need to submit a claim form. If you die, your estate or dependants should contact the super fund to find out how to claim death benefits.

Most super funds provide claim forms on their websites or you can call them and ask them to send you one.

When you make your claim, you may be asked to provide documentation that proves your condition, including medical reports. There may be waiting periods in some cases.

Some funds will allocate you a claims officer to be your point of contact if you have any questions during the claims process.

Unhappy with your super fund’s claims process?

If you’re unhappy with the claims process or unhappy because your claim is not accepted, complain to the super fund using its formal complaints process. Your super fund’s website should have details about how to complain. If not call and ask about the process, or look in the product disclosure statement.

If you’re not satisfied with the outcome, take your complaint to the Australian Financial Complaints Authority (AFCA). AFCA will generally not consider the matter unless you have used the superannuation fund’s internal complaint process first.

AFCA replaced the Superannuation Complaints Tribunal (SCT) on 1 November 2018. Complaints lodged with the SCT before this date will still be dealt with by the SCT.

You do not need a lawyer to complain to your fund or to AFCA. Of course, you may find it helpful to use a lawyer or other professional adviser if you think the benefits outweigh the fees.

Industry Code of Practice

An Insurance in Superannuation Voluntary Code of Practice started on 1 July 2018 to improve the consumer experience of insurance in superannuation. If your fund’s trustee agrees to comply with the Code, you should get better disclosure and claim and complaints handling. Your fund trustee should notify you if it is complying with the Code. You can check this on your fund’s website.

To decide if insurance through super is right for you, work out how much cover you need, whether your super fund will offer you this cover, and compare the costs and conditions with other insurance providers.

Please contact us on |PHONE| if you seek further discussion on this topic .

Source : ASIC’s MoneySmart 

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/insurance-through-super#PMIF
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The cost of owning a pet

The cost of owning a dog over its lifetime can be up to $25,000 (Source: BankWest Family Pooch Index). Cats cost slightly less but also live longer than dogs, so they set owners back around the same amount.

If you’re getting a pet, the cost will vary according to its breed, age, size, whether they have health issues, and if you choose to take out pet insurance. 

Add up the weekly costs of your pet and then put them in your budget

budget planner

Expenses for a new pet

Here are some of the expenses you might be paying when you get a new pet. Bear in mind this is only a guide and you should do your own research on the actual costs for your pet.

Pet expenses checklist

Weighing up the cost of pet insurance

Pet insurance can help cover the cost of your pet is sick or injured and needs veterinary care. The cost of pet insurance will depend on your pet’s size, age and other factors. There will also be an excess to pay on most claims, so get quotes from different providers on the costs for the level of cover you would like. 

Pet insurance is optional and you’ll need to work out if the cost of the premium is worth the coverage you’ll get. Be sure to check the claim process, excess gap cost, and the exclusions before you sign up. For more information see pet insurance.

Ways to reduce your pet costs

The cost of owning a pet can really add up, but there are some simple things you can do to cut the cost of owning one. Here are some ideas. 

• Buy your pet from a shelter – If you buy your pet from the RSPCA or a cat or dog shelter, not only will you be saving an animal that needs a home, it will already be de-sexed, wormed and vaccinated. You may also save on local council registration fees, so be sure to check.

• Register your pet – If you don’t, the fine can be much higher than the registration fee and your pet can be more easily found if they are lost. Check with your local council for accurate costs and requirements.

• Get your pet de-sexed – If you don’t plan to breed your pet, the cost to de-sex will be lower than the cost of bringing up a litter. With some councils, it is mandatory to have your cat de-sexed, so make sure you check this as the fine could be high.

• Keep your pet healthy – Providing regular exercise, a good diet, and dental care are important to maintaining your pet’s overall health and avoiding complications later in their life. Keep an eye on their weight and provide regular bones or dental treats for your pet to keep their teeth and gums healthy. 

• Phone a friend – Rather than shelling out for a boarding kennel while you go away on holidays, ask an animal-loving friend to pet sit in your home. 

• Pamper your pet yourself – Save money by trimming your own pet’s nails and treating them to a bath, rather than paying someone else to do it. If your pet requires regular haircuts, invest in a pair of clippers and teach yourself to trim their coats through online instructional videos. They probably won’t mind as much as humans would if you give them a bad haircut.

• Invest time to train – Rather than paying for a professional to help with your pet’s behavioural problems, do some research and put the time in yourself first. There are plenty of online resources available, including videos to demonstrate what to do.

• Go DIY – You can make your own toys, treats, play structures, and even beds to save you money. There are heaps of online tutorials to help you, it could save you heaps and can also be quite rewarding.   

It is important you plan for the upfront and ongoing expenses of your new pet to ensure they will fit in with your household and your budget.

Source : ASIC’s MoneySmart 

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at www.moneysmart.gov.au/life-events-and-you/life-events/getting-a-pet

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

For a long time, we have been bearish on the Australian dollar, seeing a fall into the high $US0.60s and revising this to around $US0.65 in May. In early October it fell to a low of $US0.6671. While negatives remain significant for the $A there is good reason to believe that we are close to the low or may have already seen it. This note looks at the main issues.

The negatives for the $A are well known

The big negative for the Australian dollar is that growth is weaker in Australia and spare capacity is much higher than in the US. For example, labour market underutilisation is 13.8% in Australia versus just 7% in the US, on the latest available data real growth in Australia is running at 1.4% year on year compared to 2% in the US and that translates to per capita GDP growth of -0.2% in Australia compared to 1.4% in the US. And the drag on growth from the housing downturn, weak consumer spending and the drought is likely to keep growth relatively weak in Australia for the next six months or so.

Source: Bloomberg, AMP Capital

This will keep inflation lower in Australia than in the US. Ideally more fiscal stimulus is required, and the Government has brought forward infrastructure spending. But combined with extra drought assistance this only amounts to an extra 0.1% of GDP of fiscal stimulus over the next 18 months which is not enough to make a significant difference to the growth outlook. So in the absence of more significant fiscal stimulus soon, the RBA is likely to cut the cash rate further to 0.25% and undertake some quantitative easing (ie using printed money to boost growth). By contrast the Fed is at or close to the low in US rates and is unlikely to return to quantitative easing. This will continue to make it relatively less attractive to park money in Australia. As can be seen in the next chart, periods of a low and falling interest rate differential between Australia and the US usually see a low and falling $A.

Source: Bloomberg, AMP Capital

So the higher probability of further monetary easing in Australia points to more downside for the Australian dollar. Of course, a shift in the policy focus away from monetary easing and towards greater fiscal stimulus would be more positive for the Australian dollar but this looks unlikely in the short term with the Government more focussed on delivering a budget surplus.

Five positives for the $A

However, it’s no longer an easy (in hindsight) one way bet for the $A. There are basically five positives. First, the $A has already had a big fall. To its recent low it’s fallen nearly 40% from a multi-decade high of $US1.11 in 2011 & it’s had a fall of 18% from a high in January last year of $US0.81.

Second, this decline has taken it to just below fair value. This contrasts to the situation back in 2011 when it was well above long-term fair value. The best guide to this is what is called purchasing power parity according to which exchange rates should equilibrate the price of a basket of goods and services across countries. Consistent with this the $A tends to move in line with relative price differentials over the long term.

Source: RBA, ABS, AMP Capital

And right now, it’s just below fair value. Of course, as can be seen in the last chart, the $A could fall sharply below fair value as it tends to swing from one extreme to another. But this depends on the cyclical outlook for global growth and commodity prices. Which brings us to the next positive.

Third, the global economic and commodity price cycle is likely to turn up next year in response to global monetary easing, a bottoming in the global inventory and manufacturing cycle and a pause in President Trump’s trade wars as he refocusses on winning the presidential election.

Source: Bloomberg, AMP Capital

Based on historical experience, this should work against the US dollar as the US economy is less exposed to cyclical sectors than the rest of the world (which tends to see capital flow out of the US when global growth picks up and into the US when it slows). A weaker US dollar would in turn be positive for commodity prices & the $A, which is a “risk on” currency given its greater exposure to cyclical industries like raw materials.

Source: Bloomberg, AMP Capital

Fourth, this comes at a time when global sentiment towards the $A remains very negative as reflected in short or underweight positions in the $A being at extremes – see the next chart. In other words, many of those who want to sell the $A have already done so and this leaves it vulnerable to a rally if there is good news.

Source: Bloomberg, AMP Capital

Finally, the current account has returned to surplus in Australia. The high iron ore price has helped, but so too have strong resource export volumes, services exports and a rising net equity position in Australia’s favour on the back of rising superannuation assets offshore. So the improved current account may be a permanent feature. This means less dependence on foreign capital inflows which is $A positive.

Source: ABS, AMP Capital

So where to from here?

The prospects for weaker growth and more monetary easing in Australia relative to the US suggests short-term downside pressure for the $A remains. But with the $A having already had a big fall to just below long term fair value, the global growth outlook likely to improve, short $A positions running high and the current account in surplus it’s likely that the $A may be close to, or may have already seen, its low. Our base remains for it to fall to around $US0.65 as the RBA continues to ease but at the end of 2020 it’s likely to be stuck around $US0.65-70 (or I’ll be honest & admit I don’t have a strong view either way!).

Of course, if the US/China trade war escalates badly again and the global economy falls apart, causing a surge in unemployment in Australia as export demand and confidence collapses and another big leg down in house prices the Aussie will fall a lot more…but that’s looking less likely.

What does it mean for investors and the RBA?

With the risks skewed towards the $A bottoming soon the case to maintain a large exposure to offshore assets that are not hedged back to Australian dollars has weakened. Of course, maintaining a position in foreign exchange for Australian-based investors against the $A provides some protection should things go wrong globally (say in relation to trade) or in Australia (say in relation to household debt).

For the RBA a shift in global forces towards being more supportive of the Australian dollar over the year ahead would complicate the RBA’s desire to boost Australian economic growth. Stronger demand for Australian exports would be positive, but upwards pressure on the $A would suggest that further monetary easing may be needed to help keep it down.

Source: AMP Capital 25 Nov 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

Introduction

After sharp share market falls when headlines scream about the billions wiped off the market the usual questions are: what caused the fall? what’s the outlook? and what does it mean for superannuation? The correct answer to the latter should be something like “nothing really, as super is a long-term investment and share market volatility is normal.” But that often sounds like marketing spin. However, the reality is that – except for those who are into trading or are at, or close to, retirement – shares and super really are long-term investments. Here’s why.

Super funds and shares

Superannuation is aimed (within reason) at providing maximum (risk-adjusted) funds for use in retirement. So typical Australian super funds have a bias towards shares and other growth assets, particularly for younger members, and some exposure to defensive assets like bonds and cash in order to avoid excessive short-term volatility in returns.

The power of compound interest

These approaches seek to take maximum advantage of the power of compound interest. The next chart shows the value of a $100 investment in each of Australian cash, bonds, shares, and residential property from 1926 assuming any interest, dividends and rents are reinvested along the way. As return series for commercial property and infrastructure only go back a few decades I have used residential property as a proxy.

View larger image

Source: ABS, REIA, Global Financial Data, AMP Capital

Because shares and property provide higher returns over long periods the value of an investment in them compounds to a much higher amount over long periods. So, it makes sense to have a decent exposure to them when saving for retirement. The higher return from shares and growth assets reflects compensation for the greater risk in investing in them – in terms of capital loss, volatility and illiquidity – relative to cash & bonds.

But investors don’t have 90 years?

Of course, we don’t have ninety odd years to save for retirement. In fact, our natural tendency is to think very short term. And this is where the problem starts. On a day to day basis shares are down almost as much as they are up. See the next chart. So, day to day, it’s pretty much a coin toss as to whether you will get good news or bad. So, it’s understandable that many are skeptical of them. But if you just look monthly and allow for dividends, the historical experience tells us you will only get bad news around a third of the time. If you go out to once a decade, positive returns have been seen 100% of the time for Australian shares and 82% for US shares.

View larger image

Daily & mthly data from 1995,yrs & decades from 1900. GFD, AMP Capital

This can also be demonstrated in the following charts. On a rolling 12 month ended basis the returns from shares bounce around all over the place relative to cash and bonds.

View larger image

Source: Global Financial Data, AMP Capital

However, over rolling ten-year periods, shares have invariably done better, although there have been some periods where returns from bonds and cash have done better, albeit briefly.

View larger image

Source: Global Financial Data, AMP Capital

Pushing the horizon out to rolling 20-year returns has almost always seen shares do even better, although a surge in cash and bond returns from the 1970s/1980s (after high inflation pushed interest rates up) has seen the gap narrow.

View larger image

Source: Global Financial Data, AMP Capital

Over rolling 40-year periods – the working years of a typical person – shares have always done better.

View larger image

Source: Global Financial Data, AMP Capital

This is all consistent with the basic proposition that higher short-term volatility from shares (often reflecting exposure to periods of falling profits and a risk that companies go bust) is rewarded over the long term with higher returns.

But why not try and time short-term market moves?

The temptation to do this is immense. With the benefit of hindsight many swings in markets like the tech boom and bust and the GFC look inevitable and hence forecastable and so it’s natural to think “why not give it a go?” by switching between say cash and shares within your super to anticipate market moves. Fair enough if you have a process and put the effort in. But without a tried and tested market timing process, trying to time the market is difficult. A good way to demonstrate this is with a comparison of returns if an investor is fully invested in shares versus missing out on the best (or worst) days. The next chart shows that if you were fully invested in Australian shares from January 1995, you would have returned 9.7% pa (with dividends but not allowing for franking credits, tax and fees).

View larger image

Source: Bloomberg, AMP Capital

If by trying to time the market you avoided the 10 worst days (yellow bars), you would have boosted your return to 12.4% pa. And if you avoided the 40 worst days, it would have been boosted to 17.3% pa! But this is very hard, and many investors only get out after the bad returns have occurred, just in time to miss some of the best days. For example, if by trying to time the market you miss the 10 best days (blue bars), the return falls to 7.6% pa. If you miss the 40 best days, it drops to just 3.6% pa.

The following chart shows the difficulties of short-term timing in another way. It shows the cumulative return of two portfolios.

• A fixed balanced mix of 70 per cent Australian equities, 25 per cent bonds and five per cent cash;

• A “switching portfolio” which starts off with the above but moves 100 per cent into cash after any negative calendar year in the balanced portfolio and doesn’t move back until after the balanced portfolio has a calendar year of positive returns. We have assumed a two-month lag.

View larger image

Source: Global Financial Data, AMP Capital

Over the long run the switching portfolio produces an average return of 8.8% pa versus 10.2% pa for the balanced mix. From a $100 investment in 1928 the switching portfolio would have grown to $218,040 compared to $705,497 for the constant mix.

Key messages

First, while shares and other growth assets go through periods of short-term underperformance relative to bonds and cash they provide superior returns over the long term. As such it makes sense that superannuation has a high exposure to them.

Second, switching to cash after a bad patch is not the best strategy for maximising wealth over time.

Third, the less you look at your investments the less you will be disappointed. This reduces the chance of selling at the wrong time or adopting an overly cautious stance.

The best approach is to simply recognise that super and investing in shares is a long-term investment. The exceptions to this are if you are really into putting in the effort to getting short-term trading right and/or you are close to, or in, retirement.

Source: AMP Capital 14th November 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.