Q: I’m disillusioned with the volatile and patchy performance of the equity component of my Super Fund. I’m 45. Should I move to a more defensive asset allocation and if so, what sort of assets should I be looking for?

A: You cannot access your Superannuation funds until age 60. Moreover, according to the ABS, your true time frame for investing is actually 36 years i.e. your life expectancy. You are a long term investor!

Share markets rise and fall, the long term 100 year trend for the Australian Share market is up. In all cases (Great Depression included), falls in the share market have been followed by periods of growth following the bottom of a cycle. Usually the greatest recovery occurs within 12 months of the bottom of the market.

Until you sell an investment, you have not actually made a loss on the investment. If you acknowledge that you are investing for the long term, why would you sell out when asset values are low? When do you buy back in? Do you wait for Shares to recover in value to be more expensive? History has shown that investors do far less harm to their portfolio by riding out the volatility and holding these growth assets for the long term.

If someone offered to buy your home for a price you thought was too low, you wouldn’t accept it. Unless you were a forced seller you would ride it out. Likewise with the share market, no one is forcing you to sell your portfolio when prices are down. In fact when quality shares fall in price, it is the time to buy. This is referred to as contrarian investing and it is hard to do especially when the heard says “time to get out.”

Warren Buffet said that the “share market facilitates the transfer of wealth from the impatient to the patient.” Always invest for the long term. You have time on your side, and you are not a forced seller. History has shown the appropriate course to take, it is only in hindsight that the strategy will be vindicated, sadly when the opportunity has passed for some.

This article was published in The Australian on 29 October 2011. A direct link to the article can be found here.

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