Depending on how your Super is invested, you may have noticed your balance drop quite a bit in value soon after the COVID-19 pandemic took hold. If a significant portion of your portfolio is invested in the share market, a widespread drop in share prices would be a likely cause. Share markets suffered quite large losses as worries about the crisis spread.

At such times, it’s only natural to wonder if investing in shares is the right thing to do.
This is a question about Asset Allocation. And the best way to answer it is to consider your investment objectives.

If you’re a longer-term investor, with a time frame of five years or more, you’ll be hard pushed to achieve reasonable objectives without the benefits of growth investments such as shares or property.

Growth investments experience greater volatility than other classes of assets. In other words, their prices experience larger swings – in both directions – up and down. Even so, good quality assets, bought at reasonable values, whether shares or property, will generally rise in value over time.

Average Rates of Return

When you invest in growth assets it is important to understand you should be targeting an average rate of return. In this context, average means taking the rate of return over successive years and calculating the average.

Some years you may achieve returns well in excess of your target, while in others, the return may be lower, and sometimes negative. But so long as you achieve your targeted average over the longer term you will meet your objective.

It’s also important to understand that different asset classes will outperform, or underperform in different years. You can see this effect at work by looking at five major asset classes over the 10 years to June 2018.

Occasionally the asset class which outperformed in one year showed a poor, or even negative, return the following year. This illustrates the importance of having a diversified investment portfolio covering all the major asset classes.

Financial year returns for major asset classes

Year to 30 June Cash Australian Fixed Interest Listed Property Trusts (Aust) Australian Shares International Shares
2010 3.9% 7.9% 20.4% 13.8% 5.2%
2011 5.0% 5.5% 5.8% 12.2% 2.7%
2012 4.7% 12.4% 11.0% -7.0% -0.5%
2013 3.3% 2.8% 24.2% 20.7% 33.1%
2014 2.7% 6.1% 11.1% 17.6% 20.4%
2015 2.6% 5.6% 20.3% 5.7% 25.2%
2016 2.2% 7.0% 24.6% 2.0% 0.4%
2017 1.8% 0.2% -6.3% 13.1% 14.7%
2018 1.8% 3.1% 13.0% 13.7% 15.4%
2019 2.0% 9.6% 19.3% 11.0% 11.9%
Average 3.0% 6.0% 14.3% 10.3% 12.9%

Source: Vanguard Interactive Index Chart. All figures shown are before fees and taxes.

Always remember…

  • Seek professional advice to choose appropriate investments for YOU. These should have been well researched for their financial soundness, whether they are individual investments or managed funds.
  • Be sure to have a portfolio which is diversified across major asset classes and subclasses. The balance of the portfolio should be designed to achieve your long-term objectives at an acceptable level of volatility. Diversification is harder to achieve when you’re starting out – but becomes easier as your portfolio grows in value.
  • Try not to panic when you see values fall. It is human nature to be concerned when you see the value of your assets fall. However, markets eventually recover and a sound investment will perform over the longer term. Selling after a downturn will not help you achieve your objectives.
  • Review your portfolio at least annually to ensure it is still appropriate to your objectives and market conditions.
    Past performance is no guarantee of future results.

Would you like advice on managing your investments?

Contact House of Wealth today for a free financial planning consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.