Smart Investing
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The Federal Budget’s confirmation that the annual cap on concessional superannuation contributions for all fund members over 50 will halve to $25,000 from the 2012-13 financial year, has some investment commentators envisaging that more investors will turn to negative gearing.
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We've been told by the financial community at large that it's a tough time to be an investor. The financial markets are extremely volatile. Bond yields are near historic lows. The outlook is uncertain.
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The latest bouts of sharemarket volatility and this month’s cut in official interest rates once again highlight the crucial role of bonds in a properly diversified investment portfolio.
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Self-managed super funds typically have a much high exposure to cash than fixed interest.
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The Australian superannuation industry reverted this week to its unwanted status as one of the government’s favourite Budget ‘hollow logs,’ with billions of dollars in savings extracted from the system by reneging on a tax break meant to encourage higher retirement savings, and a doubling of the concessional tax rate on the super contributions of those earning more than $300,000.
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News & Commentary
Take extreme care when someone makes a bold prediction about anything – including the investment markets. Chances are the predictions could be well off mark.
And, poorly-informed investors who readily accept such predictions are putting their finances at risk.
An investment research commentary from Vanguard in the US recently repeated these gems from the archives of infamous investment forecasts:
- The Dow Jones will hit 36,000 – a prediction from the 1990s. (It now sits at about 11,500.)
- The US real estate market will not go bust – a prediction from 2006. (And we all know what happened to the American residential market during the GFC and its aftermath.)
“It’s common to hear forecasters who make mistakes argue that they were not really wrong – they were just off on the timing,” Phillip Tetlock, a professor of management and psychology at the University of Pennsylvania, is quoted as saying in the Vanguard commentary.
Tetlock is a world-class specialist on forecasters who make lousy predictions. In fact, he is well-known for spending years tracking the predictions of 284 “experts” who made 28,000 predictions across a range of topics.
“As a whole, experts were slightly more accurate than the proverbial dart-throwing chimpanzee,” Tetlock concluded.
Sadly, it seems that some people feel almost obliged not to ignore the forecasts of others. “There is a deep-rooted need to believe that we live in a predictable and controllable universe,” Tetlock commented. “…people anticipate intense regret – and a lot of blame – if they failed to heed authoritative-sounding advice that turned out to be accurate.”
The message from all of this for investors is to become as informed as possible and be suspicious, highly suspicious, of any bold investment tips or predictions.
* Written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia.
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