Matt Armstrong, Analyst, Investment Strategy
What is it that makes investment decision making feel so challenging? The growth of online courses, calculators, budgeting tools and mobile applications means it’s never been easier to locate information. And there is no shortage of opinion from financial ‘experts’ with the number of internet, TV and radio commentators bordering on the overwhelming. My explanation is very basic; we simply do not like dealing with uncertainty. We are inherently uncomfortable making financial decisions, in the face of an unknown outcome – especially when the impacts of those decisions can be significant. These are the kinds of decisions that can keep us up at night.
As a financial markets participant I completely understand this perspective. Even the most careful, comprehensive investment analysis ultimately has its limitations if an unforeseen event occurs, or if there is an unexpected political or regulatory change. However the nature of Australia’s compulsory superannuation system means that at some point we all need to make investment decisions in the face of uncertain outcomes, even if this decision is simply to allow your superannuation fund to manage your retirement savings on your behalf through a default investment option.
The most challenging aspect of investment decision making for any investor is not determining what could happen or even the best course of action if something does happen, but what will happen. Actually this is more than challenging, it’s near impossible. Concepts like utility, rationality and opportunity cost have been developed to assist investment professionals, but how useful are they to an average super fund member?
So what can be done? Well, designing an investment strategy that performs reasonably well under a wide variety of market conditions is one of the ways we manage this kind of uncertainty at QSuper. And it is this thinking that has motivated many of the changes to the strategy of our Balanced option (and other Ready Made investment options) over the last few years.
In practice it means creating a highly diversified portfolio that meets objectives across a range of economic scenarios as opposed to one that does exceptionally well or poorly in a few. Effectively this type of investment strategy narrows the range of returns you can expect to receive from the Ready Made investment options. As a result this portfolio is likely to be less volatile when compared to a typical balanced investment strategy (with a 70/30 growth/defensive split), giving a greater degree of certainty around which to plan for retirement.
Determining your retirement income goals and investment strategy will depend on your specific needs and circumstances, but I’d suggest selecting an approach which gives you a greater chance of achieving those targets is a good place to start in delivering that sleep at night factor.
The views of the author and those included in the responses to comments posted on this blog are not necessarily the views of QSuper. This information is for general purposes only. It is not intended to constitute advice and persons should seek professional advice before relying on this information.
Past performance is not a reliable indicator of future performance. Each of our investment options has a different objective, risk profile, and asset allocation.
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Analyst, Investment Strategy
Matt is responsible for researching alternative investment strategies, implementing and maintaining asset class forecasting models, and providing support to the portfolio managers.