Investment returns in 2019 were terrific, except for cash and Australian small caps.
As is often the case, a good sector one year is not so flash the next, and small caps were top of the pops in 2018 so the two-year number is good. With growth super funds delivering around 10% a year for a decade, it's tempting to expect similar good returns in future. The Morningstar Gameboard below shows only one negative asset class result over the last five years.
I cant remember it ever being this good!!
RBA Governor Philip Lowe delivered a warning for those who hope their retirement savings will enjoy a similar tailwind in the next five years. As well as saying the economic effect of climate change would be 'profound', what stood out to me was his statement on low interest rates:
“We’re going to be in this world for a long period of time,” and low interest rates could be around “for years, possibly decades”.
If that is the case, the $64 question is then, where do you turn to if you are not satisfied with the pittance you'll get from your bank deposits.
There is no silver bullet here!!
The reality is that higher returns can only ever be achieved by taking on some more risk.
If someone is telling you different, walk away.
A little more risk is not necessarily a bad thing. Understand though, that volatility is the price you will pay for those potential higher returns.
Take shares for example. If we look at every decade since 1880, we find that shares have produced a negative return in up to four years out of ten. This means anyone who owns them can expect four negative years and six positive years. Those who think the glass is half empty will focus on the four negative years – those who think it is half full will rejoice in the knowledge that there are more good years than bad.
Sadly, nobody knows which ones they will be.
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