News & Commentary

Short-term survival skills 25 Nov 11

There is one section of society you can be sure is not giving a second thought to global economic woes.

The annual celebration/migration that has become known as the schoolies phenomenon is getting into full swing as year 12 exams are completed and young Australians go into party mode for a week or two.

At the tender age of 18 who can deny them some breakout time before the serious prospect of university study or full-time work has to be confronted.

At 18 - provided they do not do too much damage during the schoolies experience - their life expectancy is likely to continue to rise as health and medical technology continues to advance.

While they probably represent a cohort of extreme short-term thinkers at this point in time in another way they represent the optimism that comes with being a long-term investor.

They may not fully appreciate it but this year’s schoolies have almost 50 years to save for their retirement – although by the time they turn 65 the retirement age could well have been pushed further up in line with extended life expectancy and work patterns.

It is interesting to think forward to what may change in the 50 plus years before the current crop of 18 year olds are dealing with the reality of retiring.

If you rewind the clock back 50 years it is truly amazing to think of all the things that have changed and that we now accept as a part of everyday life– the internet, medicare, capital gains tax, superannuation and major banks, airlines and utilities that are not owned by governments.

Medical research into how the brain works combined with the study of psychology and behavioral finance points to a clear difference in the way we process short-term responses compared with longer-term decisions.

And much of it comes down to how the issue at hand is framed.

There is no doubt that in the short-term the European debt situation is confusing, challenging and serious on a range of levels. Sovereign countries at risk of defaulting on their loans is not something that is easily corrected in the short-term.

As a result markets seem to be poised with a finger on the trigger awaiting the latest news instalments every day.

So it is no surprise that short-term fear is the dominant emotion of the day.
Not everyone has the real luxury of time that this year’s schoolies enjoy. But even someone approaching retirement now has an investment horizon that will probably span 20 years.

When investment markets are at their most challenging keeping a long-term perspective and sense of balance can keep investors on track – and help parents survive another year of schoolies celebrations.

* Written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia.
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