As featured in the Herald Sun – Friday 18th November 2016.
By Gary Stone – Author of Blueprint to Wealth: Financial Freedom in 15 Minutes a Week & the Founder of Share Wealth Systems
Everybody is an investor, whether you acknowledge it or not, through your mandatory contributions to Superannuation, whether to an SMSF or any other kind of Super fund. It just makes sense, therefore, that you learn to take responsibility for your investments, whether you manage your own SMSF, or not. Because ultimately everybody is responsible for the final performance outcome of their investments many years down the track even if the management of their nest egg is ‘outsourced’ to an industry or retail Super fund.
In my dealings over two decades with everyday investors it has surprised me how few investors actually measure the ongoing performance of their investments, Super or otherwise, compared to a benchmark that represents the available performance over any given period. The popular benchmark to use in Australia is the ASX200 Accumulation index, which represents investing in Australian stocks and reinvesting all dividends, but not re-investing franking credits. Other indices could be used too, such as the ASX20, ASX50 or ASX300.
Reasons why people don’t measure the performance of their investments mainly boils down to not knowing how to or not wanting to find out. People seem to be happy to apply a gut feel for what an acceptable return is. This is simply not good enough and certainly is not taking responsibility.
Those that do measure typically do so when recent quarterly or annual Super fund returns are published in the mainstream media. They then project the comparative quarterly short-term performance to determine how their multi-decade choice of investments may perform in the future. This is akin to measuring how well the Australian cricket team has done over the prior 11¼ minutes to determine their overall final performance in a Test match!
It will probably surprise you to hear that not a single industry or retail Super fund, of which there are over 300 to choose from, has got within cooee of the performance of the ASX20 Accumulation index, using July 1993 as the relative starting point from which to measure performance. This provides perspective and probability. Perspective that short-term performance is not that important provided the investing principles are sound. And that the highest probability way of assuring the best, or close to the best, performance over the long term is to simply invest in the stock market index.
Over this period, achieving the ASX20 Accumulation index return would have resulted in some 70% more lump sum than achieving the median Super fund return; i.e., $1.0M instead of $585,000. By definition, fifty percent of the 300+ industry and retail Super funds would have delivered even worse outcomes. Which one are you in and how has it performed?
Why the massive underperformance? Excessive fees and excessive diversification for long-term investing. Not taking responsibility can cost you hundreds of thousands of dollars. Twenty-three years ago you couldn’t invest in the stock market index, now you can. Tune in next week to find out how and why.
On the journey…
Author of Blueprint to Wealth: Financial Freedom in 15 Minutes a Week www.blueprinttowealth.com/
Miss out on the LIVE Meet the Author webinar last week? Watch the recording. Gary discusses his new book and answers many questions of those who attended.
Check out Gary’s other media appearances: https://www.blueprinttowealth.com/