Have you reviewed your Investment Strategy lately?

The past few years have seen heightened share market volatility and uncertainty. While markets and investments change constantly, there are a set of fundamental investment principles that are timeless: buy good quality investments; don’t pay too much; diversify widely (including outside the mainstream asset classes) and allow your investments sufficient time to perform. These principles are tested by markets periodically, but they have stood the test of time.


Climbing the Risk Return Ladder

The higher you climb on the risk/return ladder, the greater the risk taken to achieve a higher potential return. Term deposits are generally very safe but returns are usually low. Shares involve more risk but the potential returns are higher. For more long-term investors, it’s not a case of choosing one or the other. To spread risk without sacrificing return, it’s usually smart to have a combination of investments.

Over time, investing in shares will almost always provide a higher return than investing in term deposits. As you can see, investors who switched out of shares into cash seeking short-term reprise from falling markets and market events (November 2008 – March 2009) have not recovered the value of their investments. However, investors who remained fully invested in shares were better placed for longer-term gains.


Shares Pass the Test of Time in Australia

The shape of this chart tells a story. On the left of the vertical line are the years that the Australian share market has fallen since 1981, the first full year after the Australian share market index started. On the right are the years the market rose. Since 1981, markets have risen by approximately 20% or more in a year on 10 occasions and fallen by more than 20% just once. Over long periods, the good has definitely outweighed the bad. This shows that it pays to stay committed to investment objectives over the long term.


Why Most Investors Fail

Most investors fail. A strong statement? Consider this – the US research firm DALBAR Inc. found that the average investor in US share funds achieved a return of just 5.2% p.a. over the 20-year period from 1996 to 2015, even though the market they invested in returned 9.9% p.a. Why? It appears investors tried to time the market and, in switching their funds in and out at the wrong time, simply missed the best days.


It Pays to Get Started Early

Harry started investing in super today. He contributes $20,000 a year for 10 years. He then stops investing, waiting five years and retires. Sally waits five years. She then contributes $20,000 to super for 10 years, stops investing and retires immediately. Both put the same amount of money into super yet Harry retires with $442,739 and Sally has only $301,320. Why? Simply because Harry started earlier.


Make Your Money Go Further

If you’re investing for retirement, superannuation is a smart way to go. As long as you don’t need ready access to your money, super provides a lower-tax environment than ordinary savings so your money grows faster over time. As the chart shows, if you invest $20,000 in ordinary savings for 20 years, and contribute $1,000 each month as well, it may grow to around $156,362, while investing the same amount in superannuation for 20 years may grow to around $228,986 based on exactly the same assumptions.


Take action now – contact Sandy Gosper at Kennedy Barnden to find out how we can assist you in reviewing your investment strategy and maximising your investment returns.  The longer you delay a review of your strategy, the more you could be missing out on!

DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein. From time to time we may bring to your attention products, services or other information that may be relevant to you. If at any time you no longer wish to receive this information, you may opt out by contacting us on (02) 4365 6789. This document contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making an investment decision. Charter Financial Planning Limited and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded. The financial advisers at Kennedy Barnden Financial Services are authorised representatives of Charter Financial Planning Limited ABN 35 002 976 294 Australian Financial Services Licensee Licence Number 234 665  

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