So what was the catalyst a year ago last month which has since caused the ASX 200 to rally over 50% since its ‘bottom’ (intra-day low) on 10 March 2009? A few headlines from BBC News from that day include ‘Worst crisis since 1930s says Fed’, ‘US job prospects hit 27-year low’, and ‘Australia Clinch Series Victory.’ Not much good news there unless you are a cricket fan and so you could be forgiven for being a little puzzled that many equity markets around the world started to recover at a time when there was still so much economic uncertainty. So what’s the point?
The point is that, once again, it is proven that it is very hard to time or predict movements in investment markets over the short term. Thus the timeless adage, it's not timing the market, but time in the market, holds true.
If you decided to switch to a cash option out of a managed investment option such as Balanced or Growth, on or around 10 March 2009, you would have crystallised losses from the significant downturn in equity markets and missed the subsequent gains from the 50%+ rebound. This is a clear example that losing sight of the long-term picture may decrease your retirement balance and plans for a comfortable lifestyle.
As superannuation for most of us is a long-term investment, those of us who started work after compulsory superannuation was implemented in the Eighties will accumulate over 45 years' worth of contributions and compounding superannuation returns. Now to me, that’s a long-term investment and the chart below shows how the returns of different asset classes have increased over the long term.
But the chart also shows that despite an increase over the long term, these returns can be volatile. For the period from 1984 to around 2000, International shares outperformed Australian shares; however, since 2000, Australian shares have outperformed International shares. Due to this uncertainty and volatility, especially across asset classes such as equities, most superannuation funds offer a variety of investment options which diversify the risk and returns across multiple asset classes. However, the right choice of investment option will depend on your circumstances and personality.
Let’s use some CareSuper investment options as an example. The relative stability of the Capital Secure asset class option (formerly known as Cash), in terms of return over the short and longer term, can clearly be seen in the table below. Compare this with the relatively more volatile but higher returns of the Balanced managed investment option, and the even more volatile but again higher long-term returns of the Growth managed investment option. Thus it is suggested that an option like Growth is most suitable for someone with an investment timeframe of at least seven years or someone whose financial situation allows a higher degree of risk.
| Asset Class/Managed Investment Option |
1 year (%) |
3 year (% p.a.) |
5 year (% p.a.) |
7 year (% p.a.) |
| Capital Secure |
3.98 |
4.07 |
4.51 |
4.53 |
| Balanced |
16.94 |
0.11 |
5.49 |
8.03 |
| Growth |
24.68 |
-0.97 |
5.47 |
8.81 |
Note: Returns are estimated net of estimated fees and taxes as at 28 February 2010.
So if you’re a younger person with 40 years to retirement, the Growth option with a higher allocation to equities might suit your profile. Whereas, if you’re a person with only a few years to retirement, perhaps an option like Capital Secure would better suit.
When selecting a superannuation investment option, try to keep a long-term view in mind while considering your own circumstances. If your circumstances change, then your managed investment option can also be changed. But remember, looking through a crystal ball may only distort the picture on the other side.
