Among the investors who suffered most from the GFC are those scarred by the experience who moved into cash and term deposits for the last decade. Their income has fallen dramatically. Meanwhile, investors who stayed in a balanced portfolio, with an asset allocation like the one below, have seen investment returns in 10 years of over 80%, despite the initial ravages in 2008.
Research by Vanguard on 580 Australian balanced funds shows asset allocation is responsible for 90% of a diversified portfolio's return, leaving only 10% for factors such as stock selection. Yet many investors spend most of their time selecting shares or fund managers.
Asset allocation of superannuation funds excluding SMSFs
Source: Association of Superannuation Funds of Australia (ASFA).
This institutional portfolio mix differs from most SMSFs due to its larger allocation to global equities, unlisted assets and hedge funds. However, Marcus Evans shows SMSFs are increasingly diversified, and global equities are popular for new flows.
This week, five insightful stories on investing: Roger Montgomery believes many so-called innovative and disruptive companies, including Afterpay and Tesla, are simply a tweak on an existing business model; Steve Johnson offers an honest mea cupla on his poor call buying Freedom Insurance, which fell foul of the Royal Commission last week; Erik Weisman explains what we can really interpret from the shape of the yield curve, which is worrying many investors; and Rudi Filapek-Vandyck gives his final summary of the latest ASX reportingseason. Back on the GFC, Brett Lewthwaite shares his personal view of watching the CDO market go crazy 10 years ago.
Continuing our debate on Labor's franking policy, Warren Bird responds to the readers who argue that SMSFs in pension mode should not have a zero tax rate. In fact, they've already paid tax. Yesterday, Treasurer Josh Frydenberg asked the Standing Committee on Economics to inquire about the implications of removing franking credits, and submissions can be made here.
Another Royal Commission, now into the aged care sector, hit the market this week, with Aveo, Japara, Regis and Estia all suffering heavy falls. The mortgage broking hearings were bad, superannuation was worse and insurance was shocking, but aged care will be the worst.
This week's White Paper from Accurium/Challenger is a subject often overlooked by SMSF trustees in managing the capital gains which form part of their assessable income each year.
Graham Hand, Managing Editor
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