If all humanity’s problems stem from man’s inability to sit quietly in a room alone, then all of our retirement funding problems stem from man’s inability to sit quietly and not fiddle with his investment portfolio.
Rainmaker put some “research” out, which amounted to gathering superfund returns for 12 months along with asset class returns, and alerting the media about it. About 20 minutes work there! The AFR had space to fill so they kicked off an article with Rainmaker’s research reminding us investment returns have stunk over the past 12 months, and then rang around some other financial industry quote people and got their thoughts too.
If you don’t know where this is going, the angle is always the prompt of taking some action. Sure, there’s some “volatility is the price for higher returns”, but the media runs on action. What can investors do to cope with returns that stink? Do. Act. Move.
Highlighting this, one of the more unfortunate admissions came from Wayne Strandquist, president of the Association of Independent Trustees, a lobby group for those fully or partly self-funded in retirement.
“Poor returns are rekindling discussions about diversification. Many fund members previously left their holdings in a default balanced fund. They are now more likely to consider alternative strategies.”
Yep. A year of bad returns, measured by the arbitrary date of September 30 and our imaginary retirees, we’ll call them Trevor and Beryl, are considering alternative strategies. Changing strategy in the midst of chaos is the ultimate penny smart/pound foolish investment move.
What is a possible outcome here?
Whiskey barrels at 8% pa. Maybe someone’s got a plan to redevelop a tropical island and is going to fund it with a 5.5% pa “cash like” product over five years. There won’t be a shortage of scoundrels selling the low volatility, guaranteed return dream to Trevor and Beryl. More than one Trevor and Beryl out there will take the bait. They’ve had a rotten 12 months and this can only continue, right?
At some point we all have to get comfortable with losing a dollar. It’s inevitable. There are no straight lines upward when investing. If you can’t get comfortable with losing a dollar, then you’ll always be on the hunt. Looking for the better option. The better option always tells you exactly what you need to hear. There won’t be any dollars lost. The straight lines are upward. Stress free.
Until the fatal moment.
It’s amazing how much you forget. Yesterday I came across a review I did of Ben Carlson’s book Don’t Fall For It: A Short History of Financial Scams.
I highlighted the newsletter section as being notable. Back in the 1970’s inflation was high, the sharemarket was in the toilet. Chaos was everywhere. In 1974 there were predictions of system collapse, civil war and violence on the streets. Hucksters were selling this to their readership. People were lapping it up. I assume the best investment was gold, bullets and baked beans.
In late 1974 the market swung and the S&P 500 was up 38% in the next 12 months. At the time, I thought this was a point that needed to be highlighted. It still is. Eventually it fell out of my head and I work in the space. How do Trevor and Beryl remember this unless they have a source of truth to refer to or someone to counsel them?
Returns are lumpy. Nothing, then all at once. You won’t get them if you’re not comfortable losing a dollar. And if you need a guarantee on returns you better get comfortable losing every dollar. The only people who offer guarantees are frauds.
This represents general information only. Before making any financial or investment decisions, I suggest you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs. Don’t make financial or investment decisions on the basis of blog post or sourcing advice from internet forums, if you’d like a introduction to investing, please consider reading Your Investment Philosophy, which offers an evidence based primer for building your own investment philosophy.
