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A game-changer for multi-decade investing, like your Super

By November 30, 2016November 20th, 2023Uncategorized

As featured in the Herald Sun – Friday 25th November 2016.
By Gary Stone – Author of Blueprint to Wealth: Financial Freedom in 15 Minutes a Week & the Founder of Share Wealth Systems

Last week I pointed out that by achieving the returns of the ASX20 Accumulation index on the stock market since July 1993, your Super account balance would have been 70% better off than achieving the median Super fund return over that period; or be worth $1.0M instead of $585,000. And, by definition, half of the 300+ industry and retail Super funds would have delivered less than $585,000.

Twenty-three years ago you couldn’t invest in the stock market index, now you can. With an Exchange Traded Fund, or ETF. Simply put, this game-changing investing instrument is a fund (your industry or retail Super fund is also a fund, as are other active managed funds) that is listed on the stock exchange. The only purpose of an index ETF is to track and match its underlying stock market index, not beat it. For example, owning the ASX20 ETF is like owning a small part of each of the top 20 listed companies in Australia, now and in the future, whichever companies they may be at any time.

“Not beat the index!” I hear you exclaim, “that’s aiming a bit low!” For decades, the mantra of the fee-prone financial funds establishment has been that they can beat the stock market index, not just match it. Yet the evidence shows quite the contrary, that over the long term the majority of the active fund establishment continues to battle to get anywhere near the returns of the mainstream stock market indices.

Published research by S&P Indices in their bi-annual SPIVA® ScoreCards and Persistence Reports has been demonstrating for years that the majority of active funds the world over, including Australia, do much worse than their benchmark index and that over time hardly a single fund matches, let alone beats, the stock market. Leaving the Super balances of hard-working everyday investors many hundreds of thousands of dollars worse off than what they could achieve.

The two main reasons for the financial establishment’s laggard performance are their fee-fleecing nature and their culture of overdosing on diversification.

Unsuspecting everyday investors are fed jargon-jerky by the financial establishment to justify their ongoing higher fees, which ultimately contributes to their long-term underperformance. Industry Super funds charge double to seven times and retail Super funds up to fourteen times higher annual fees than mainstream index ETFs. As John Bogle said: “What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compound costs.”

Diversification into lower performing asset classes is a valid investing risk management technique for investing horizons up to seven years, or maybe ten at a push. But for fifteen to fifty year horizons, it is not. There are better ways, but they don’t demand charging higher fees.

In Australia, there are four index ETFs that track the mainstream Australian stock market indices. Backing one these in the Super investing stakes, an everyday investor can get a predictable first place over the long run by far more than the length of the proverbial home straight.

On the journey…

Author of Blueprint to Wealth: Financial Freedom in 15 Minutes a Week

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