Asset allocation drives your returns

TL;DR

Default funds in superannuation plans can sometimes outperform pre-selected funds due to their asset allocation, with a higher allocation to growth assets leading to better long-term returns.

Transcript

g'day and welcome to this week's video my name is robert garvey and i'm from consortium private wealth in horsham recently we had a call from a journalist who was doing an article on superannuation default funds and what he was doing is comparing a default fund within a superannuation plan and just so you know that a default fund is a if you start ... Read More

Key Insights

• 😑 Default funds in superannuation plans can sometimes outperform pre-selected funds.
• 📼 The asset allocation of a fund, particularly the allocation to growth assets, is crucial in determining long-term returns.
• 📼 Different balanced funds have varying asset allocations, with a higher allocation to growth assets leading to better returns over the long term.
• 🍉 Short-term volatility in the stock market is not necessarily risky when investing for the long term.
• ✋ Investors who want higher returns should be prepared to accept short-term volatility in their portfolios.
• 🍉 Short-term volatility is influenced by emotions, fears, and greed, but long-term investment horizons mitigate the impact of short-term fluctuations.
• 🍉 Retirement planning should consider the continued investment of funds to benefit from long-term growth.

Questions & Answers

Q: Why do default funds sometimes perform better than pre-selected funds in superannuation plans?

Default funds can outperform pre-selected funds due to their asset allocation. If a default fund has a higher allocation to growth assets, such as shares and property, it can generate better long-term returns.

Q: What is the main driver of returns in investing?

The main driver of returns in investing is asset allocation. The allocation of funds to different asset classes, such as Australian shares, international shares, and property, determines the overall return on investment.

Q: What is the difference between the asset allocation of different balanced funds?

Different balanced funds can have varying asset allocations. For example, one balanced fund within an industry super fund had nearly 85% allocation to growth assets and only 15-18% allocation to conservative assets. Another balanced fund had a 50% allocation to growth assets and 50% allocation to conservative assets.

Q: Is short-term volatility considered risky when investing for the long term?

Short-term volatility is not considered risky when investing for the long term. It is important to understand that share markets will go through ups and downs in the short term, but over a long investment time frame, these fluctuations do not necessarily indicate risk.

Summary & Key Takeaways

• A journalist compared default funds in superannuation plans with pre-selected funds and found that some default funds had better returns.

• The main driver of returns in investing is asset allocation, particularly the allocation to growth assets like shares and property.

• Different balanced funds have varying asset allocations, with a higher allocation to growth assets leading to better returns over the long term.