Good times, bad times - John Collett - Columns - Money - Business -...
http://www.smh.com.au/news/john-collett/good-times-bad-times/200...
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Good times, bad times By John Collett November 22, 2005 It is 14 years since Australians experienced a recession. Anyone in their 20s or younger would not have been in the workforce during the 1991-92 recession. Since then the country's economy has been humming along. One of the ways this good fortune has made itself obvious to almost everyone is through the performances of their superannuation funds. Researcher SuperRatings says the median return on "balanced" investment options was 11.9 per cent a year, on average, for the three years to September 30. However, using recent returns to work out how much you should save for a comfortable retirement could be misleading, as returns are likely to be much lower over the long term. Balanced funds, by SuperRatings' definition, are those with between 60 and 76 per cent of assets
Illustration: Simon Letch
in "growth" investment such as shares and listed property. It is also the default investment option, where more than 80 per cent of us have our super invested. Balanced options are mostly invested in the Australian stockmarket, with an exposure, SuperRatings says, of 33 per cent. The next biggest exposure is to international shares, at 25.4 per cent, and Australian fixed interest, at 13.5 per cent. The rest is divided between international fixed interest, listed property (mostly Australian), direct property, cash and "alternative" investments such as hedge funds, private equity and infrastructure. With funds being exposed to shares by almost 60 per cent, the actions of stockmarkets - and particularly the Australian market - will largely determine how big our retirement nest eggs eventually are.
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Good times, bad times - John Collett - Columns - Money - Business -...
http://www.smh.com.au/news/john-collett/good-times-bad-times/200...
Super returns over recent years have been distorted by the unusually high growth of Australian shares, which have produced an annualised return of about 20 per cent over the past two and a half years. Returns must revert to their long-term average of about 3 to 4 per cent a year above inflation. Given that inflation is running at about 3 per cent, that implies a return of between 6 and 7 per cent a year over the long term. That is the number that should be plugged into any super savings calculator, not the 11 per cent most balanced investment options have produced in recent times. No one knows for sure what will reduce the performance of Australian shares and therefore returns, but economists generally agree returns will be lower. BT Financial Group senior economist, Tracey McNaughton, says usually when the housing cycle comes off the boil the economy dips into recession. This time, however, Australia is enjoying a resources boom just as the housing markets in Sydney and Melbourne weaken, which has "injected new wealth in the entire economy". But McNaughton says "evidence is building" that global growth is past its peak and "may be slowing". Rising interest rates dampen the returns from shares. The US cash rate has increased from 1 per cent in Junelast year to 4 per cent and, with higher oil prices seemingly here to stay, more increases in the US cash rate are on the way. In Australia, interest rates remain on hold. But most economists expect that when the Reserve Bank does change, interest rates are more likely to rise than fall. However, Stephen Roberts, a research director at Grange Securities, says concerns about oil prices inflation are being "overplayed". He says the high price of energy is benefitting Australia's export sector but will also put a limit on how much the Australian economy grows next year. To head off inflation, the Reserve Bank may still need to raise the cash rate by 0.25 percentage points by March, with another 0.25 percentage points later in 2006. "The effect of these influences on equity [share] markets is likely to be a year of consolidation, characterised by wide swings in sentiment that generate comparatively small net gains over 2006," Roberts says. No one is expecting a recession or negative returns for shares, but it is likely super returns are not going to be as high as they have been in recent years.
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Good times, bad times - John Collett - Columns - Money - Business -...
http://www.smh.com.au/news/john-collett/good-times-bad-times/200...
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