Bringing understanding to your investments

It surprises me how much faith people have with their superannuation investments, especially those with Industry Funds.  Much of this is predicated on fairly decent average returns over the last 10, 15 and 20 years and reflects the growth in prosperity of much of the developed world.  Generally, comparable retail investment funds have achieved similar returns though it’s almost impossible to do a fair comparison because of the diverse range of underlying investments that can be used by an adviser to create a portfolio.  No two funds are exactly the same.

Investment Results Complacency

Because of excellent long-term average returns, there’s now a great deal of complacency that investment results will continue as they have in the past especially since many superannuation portfolios have 65% or more allocated to Australian and International share markets.  While it’s true that investment risk actually reduces over longer periods such as ten years or more this doesn’t mean that we can rest easy.  A good example of this is when preparing to retire and there’s a distinct change in the investment philosophy from accumulating savings through working life to using savings to fund lifestyle costs.  This is commonly referred to as the draw down phase.  So, if share markets fell 20% (which is not considered to be a large fall) and you’re relying on your capital to meet living expenses, this can have a dire impact on the longevity of your retirement savings.  This is a tricky situation and it’s for this reason that those near retirement, as well as those who are retired, should take a greater interest in their investment accounts so they are informed and in the position to make appropriate decisions.

Please remember this – just because an investment has done well in the past is no indicator of future returns.  Please read this again.

If this is the case how do you know what to do?