“The market usually recovers in a very quick, sharp and short snap of time. It is time in the market that makes the difference rather than trying to time the market”
“Research in Australia and Overseas has consistently concluded that asset allocation is by far the greatest determinant of portfolio outcomes. The Brinson, Hood and Beebower study,Determinants of Portfolio Performance (1986 and 1991), concludes that asset allocation accounts for 94% of the variation in returns in a portfolio, leaving market timing and security selection to account for only 6%” extract from Vanguard’s Guide to Core-Satellite Investing
Risk / Return Spectrum
How much should I invest in each Asset Class?
As is the case most of the time in Financial Planning, it is dependent on a number of variants and is very subjective. Some of the variants will include: the client’s lifestyle and financial goals, their current financial situation, their risk tolerance factor, amongst other things. Financial planners are professionally trained and qualified to select the Optimum Asset Allocation, based on the client’s unique and particular circumstances.
Your adviser will guide you through the asset class and products selection process. This will be determined by your lifestyle / financial goals, your current financial situation, your risks profile amongst other factors.
Should I invest in Superannuation or outside Superannuation?
Superannuation is not an investment product but rather an “Investment Environment”. After having decided on the right asset allocation (among the four Asset Classes discussed above), your next important decision will be to decide how much to invest in Super or Non Super environment, or both.
Your adviser will guide you through that selection process and determine the right mix between Super and Non-Super Asset Allocation. This will be determined by your lifestyle / financial goals, your current financial situation, your age, your need to have access to funds amongst other factors.
Stock Market Cycle
There have been eight downturns in the Australian Stock Market since 1978, with the Global Financial Crisis (GFC) being the most prominent. Excluding the GFC, the average market fall has been -21.2%; the average decline has lasted 8.6 months and the average recovery period has been 15.3 months.
The Global Financial Crisis (GFC) in perspective
It all started in the US with the sub-prime mortgage crisis and permeated throughout the world as those “bad mortgages” were securitised (commonly known as Collateral Debt Obligations) and sold across the world. However, prior to the GFC, generally there was an excessive appetite for risk and leveraged products, fuelling a bubble in asset prices on a global scale.
The bubble had to burst and there was no escape for the Australian stock market and economy! But it has almost been 7 years since the GFC crash and the market generally has recouped quite well since then. The Chart below shows the All Ordinaries Index (XAO) track since 2007 (excerpt Commsec web site)
This data has been provided for your information only and should not be relied on for taxation or any other purposes. Please note, the data has been provided by Markit on Demand and Six Telekurs and has not been verified by Commonwealth Securities Limited. Commonwealth Securities Limited does not make any representation or warranty as to the timeliness, reliability, accuracy or completeness of the material, nor does it accept any responsibility arising in any way for errors in, or omissions from, that material.
This data has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on this data, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.