06 Nov The Losing Super Strategy
You can always count on someone in the media to provide the most illogical financial commentary available.
Earlier this month News Ltd’s new economics editor, Jessica Irvine – showing she’d adapted well to her employer’s quest for outrage – was fanning the flames of discontent amongst superannuation investors.
Reporting on superannuation performance over the past decade, Irvine had used some strange research produced by a group called SelectingSuper, to suggest investors could have nearly quadrupled their superannuation balance.
The idea behind ‘the winning super strategy’ was to switch your $10,000 investment to the highest returning investment class each year from 2002 to 2012.
The end result would be $37,018 instead of $16,370 in left in a default fund.
It seemed all so easy, but what the article failed to mention was how impossible this task was unless you had access to a crystal ball or a time machine because no one can predict the future.
Studies regularly show investment managers, and investors themselves, are unable to consistently outperform investment markets.
So the example offered was pure gambling, only highlighting the potential upside while failing to show how much worse you’d be if every switch you made was wrong.
So I’ve done the research for ‘the losing super strategy’.
Had you switched your $10,000 investment and landed in the worst performing asset class each year from 2002-2012, you would have been left with $6,671.
Suddenly, the $16,370 result of the default fund looks respectable.
And ‘the losing super strategy’ only illustrates how risky and ridiculous the article’s premise was.
Investment portfolios are diversified because no asset class behaves exactly the same and no investor knows how any asset class will perform in any given year.
The point isn’t to have everything rising together because it never will; it’s to achieve a balance that captures the upside while also offering protection against the downside.