For release 27 July 2006
Vanguard Investments Australia Limited today urged financial planners and investors to take a 'back to basics' approach in order to understand and harness the core value drivers for investment portfolios.
Such messages include understanding the eroding impact of fees and taxes, but also the strong benefits to be had from remaining diversified over the long-term.
Vanguard's Head of Retail, Mr Robin Bowerman said simple investment messages are often lost during the heady periods of strong market returns - the like of which the Australian equity market has enjoyed over recent years.
"The Australian sharemarket has been kind to investors, delivering 23.9 per cent gains to investors in the three years to 30 June 2006.
"In addition, international shares (12.7 per cent), Australian property securities (17.9 per cent), and hedged international shares (18.3 per cent) have all delivered for investors over the same period. While this is a pleasing result it is perhaps timely to take stock and re-focus on the simple things that can help augment an investor's long-term returns," Mr Bowerman said.
The first half of 2006 has been a roller coaster ride for investors. The Vanguard Index Australian Shares Fund, for example, grew 8.9 per cent in the first quarter of 2006. For the three months ending 30 June, the fund's net return was -0.4 per cent.
"The contrasting quarters are a pointed reminder that we should expect asset classes to move up and down in the short term while keeping in mind the longer term reasons for investing, Mr Bowerman says.
"At times like these when geopolitical tensions loom large the discipline of having a written financial plan that you can pull out of your files to reacquaint yourself with the major goals and reasons for investing can be invaluable at keeping the investor's greatest enemy - emotion - at bay."
Mr Bowerman outlined the following key points:
After-tax is important
Vanguard maintains its view that the reporting of managed fund returns net of tax is critical. Low turnover of securities is proven to enhance the tax effectiveness of a fund and thus improve the gains made by investors.
Look long term
Investors must take a long-term approach to capture the benefits of markets. Indexing also serves well over the long term as most active funds find it difficult to consistently outperform the relevant index.
Diversify, diversify, diversify
Diversifying within and across markets has proven risk benefits to investors.
Fees matter
Lower fees are a good deal for consumers, putting more money in the investor's pocket.
For further information, please contact:
BlueChip Communication Vanguard Investments Australia
Bruce Madden - Mobile 0412 372 543 Leanne Henderson - (03) 8888 3823
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Notes for Editors
Vanguard Investments Australia Ltd is a wholly owned subsidiary of The Vanguard Group which is based in the US and currently manages approximately US$981 billion (A$1.3 trillion) for more than 18 million individual and investor accounts as at 30 June 2006. In Australia, Vanguard has established a reputation as an index specialist, managing A$38.4 billion in index funds, for both institutional and retail investors.
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