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Blog

June 27th, 2013
Buckle up for the long haul by Daniel Martinez

Long haul frequent flyers appreciate the value of noise-cancelling headphones. They tune out the incessant background noise of aircraft engines in a quite effective way. It is a pity   here are no equivalent gadgets so investors could tune out short-term investment market noise.

Take the last two months for example.

Just a few short weeks ago there were headlines forecasting that superannuation funds were on track to deliver a record performance result for the financial year ending on June 30. The same week there was a supplement in one of the major dailies on the subject of gearing and margin lending with a clear message that the strong sharemarket returns was breathing life back into borrowing for share investing. The suggestion was that now might be a good time to jump back into the gearing pool.

This is an example when investors could do with some noise-cancelling headphones.

As sharemarkets here and other parts of the world enjoy a strong rebound so too has investor confidence. The problem of course is that few had the confidence to borrow to invest when markets were at lower levels and represented much better value.  This is the frustrating clarity that only comes with hindsight. If we had known that the Australian sharemarket S&P/ASX300 index was going to climb 28.5% in the past year to May 30 gearing may have been a sensible idea. Conversely if you knew it was going to fall around 10% in May and June you may well have stayed away.

Sadly, market timing is as hard now as it was last year and the year before that and the decade before that.

Australia’s geographic isolation means we have to accept when we want to travel internationally we are going to have to buckle in for the long haul.

Perhaps we need to start thinking about superannuation in the same way.

Source:  Robin Bowerman, Principal, Market Strategy and Communications at Vanguard Australia.

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