Superannuation Advice

You probably know that the long-term differences in performance can have an impact quite stunning on your last pension check . It is therefore very important to find a pension fund that is likely to make on performance over time. The first step is to ensure that you are invested in an asset mix appropriate for your situation (conservative, aggressive, in-between, etc..) The next step is to find the right funds.

If you look at the statistics on how fund managers perform according to their benchmark (ASX 200 for example) you will generally not impressed. It is rare for a fund to outperform the index in one year, repeated outperformance is even more unlikely. Fund managers cop a lot of trouble over this issue with investors often what they paid them, but perhaps we should examine what it really means to overcome?

Funds are valued based on an index which is the combined performance of investments included in this index, the ASX 200 for example, is determined by the combined value of the top 200 shares of the market share in Australia by market value. If the ASX 200 is up 20% in one year, and a managed fund measured against the ASX 200 is up 21% while the fund has outperformed the index.

Fund managers will often work with tens of millions and sometimes billions of dollars of investors' money. The money goes in Australian equities will generally be spread over a large number of stocks for diversification reasons (not all eggs in one basket stuff). In that managers will do their best to excel. They will be the opportunity for performance that is above the index, but will generally fall below it. There are some reasons for this;

Higher than the market (still) is really, really hard. Almost everyone who is invested in the stock market is trying to surpass. Everyone has a different opinion and every opinion is blown up by thousands of managed funds, companies, professionals and individual investors. Machinations of the market, efficient market theory portfolio theory, all suggest that it is very difficult for any one fund or investors to outperform the market.

Too much money. If you have $ 1 billion in Australian equities, you can not invest in 10 different titles. The funds will often be invested in more than 50 stocks 200 stocks makes mathematically very difficult to outperform the index.

Because they want. Much more important than outperforming the market is not under-perform, at least not too much. Fund know that they are relative to other funds than the index. They also know that an outperformance of 2% is likely to have less impact on their capital base (and on the balance of your super for that matter) to an underperformance of 10%.

An advantage today is gone tomorrow. If a fund may temporarily find a way to outperform the market, it is not likely to keep him long. The oil market will eventually shift, what works one day does not work as well in different market conditions. Additional funds will be taken on, they will understand what the other funds made through careful analysis, or better still by poaching their staff. Once the secret is out, so generally the advantage.

They include fees. Even if a fund can navigate all of the above and provide a 1% outperformance on paper their hardwork may be canceled when they deduct their fees of 2%.

Considering all this, if your fund is regularly done at least very close to the index, otherwise outperformin.