Investing, as is life itself, is as much about the journey as the destination – and it has been quite the journey since 2003. While past performance is no guarantee of what the future will be like, it does present a good chance to test investing principles against the real-world experience of the past two decades.
It has certainly been an interesting ride with four share market drops of more than 10% and two where the fall went past 20%. But global financial crises, a global pandemic and geopolitical events like war in Ukraine affected a lot more than just our investment portfolios. However, the value of taking a long-term view is the lesson that really jumps out.
The good news when you look at investment returns since December 2003 to November 2022 is investors have been rewarded for the risk they have taken on.
A growth portfolio (70% growth assets/30% defensive) saw $10,000 in December 2003 deliver a 7.4% return and grow to approximately $38,700.
A conservative portfolio – which enjoyed a much more stable return path with a 5.8% return was worth approximately $29,100 at the end of the same period.
A high growth portfolio (90% growth assets/10% defensive) delivered return of 8.2% and was worth approximately $44,500*.
Since December 2003 the highest performing asset class was US shares thanks to a return of 10% which would have turned $10,000 in to approx $60,800. Australian shares, by comparison, delivered 9.0% and a value of approx $51,200. It’s important to note that investors who had 100% of their portfolio in US or Australian shares had a dramatically more volatile journey than those who opted for a diversified portfolio. If they could handle the volatility then they enjoyed the rewards but surely one of the lessons from the past two decades is that we all need to factor in risk as well as return.
Some Super fund options have higher risk levels than others so invest the time to understand your fund’s portfolio – and particularly as you approach retirement you may want to dial the risk exposure down. The value of having a written financial plan shines through because it will remind you of why you were investing in the first place and the goals that are important to you.