Your super is a long-term strategy.
While there’s no universally agreed definition for ‘long-term’ or ‘short-term’ investing, we like to think of ‘long-term’ as 5 years or longer, particularly when it comes to superannuation.
Why is reacting to short-term performance a ‘Fool’s Game’?
Let’s compare 2 hypothetical superfunds side-by-side and start by zooming in on a 3-year performance comparison.
It looks like Superfund A is smashing Superfund V right?!
Okay, let’s zoom out a little bit and see how they look after 5 years…
It appears Superfund A and Superfund V are about the same…
Let’s see how they look after 10 years…
Woah! Superfund V is definitely the better performer over the long-term!
So… what happened there?
Superfund V smelt an imminent correction in Year 2, favouring a more conservative & bearish approach to their investment strategy.
Meanwhile Superfund A maintained course.
Superfund V missed out on some of tail-end growth between Years 2 & 4, while Superfund A enjoyed every last drop.
Then, somewhere between Years 4 & 5 – the sharemarket suffered a long overdue correction. Woah man!
Superfund V did experience some loss during the correction, but nowhere near as much loss as Superfund A.
When the markets bounced back, both funds recovered nicely, however as Superfund A was rebounding from a much lower position, it needed to work twice as hard as Superfund V.
Resultantly the gap between Superfund V and Superfund A widened, and would continue to widen if long-term cycles continued. To better understand why this phenomenon happens, you should also read https://thevirtuouscollective.com/uncategorized/why-loss-prevention-should-be-the-the-most-important-feature-of-your-portfolio-and-what-the-vco-are-doing-about-it/
Remember, the above is a hypothetical scenario, but this kind of thing happens in the real world.
We like to think of our Tuna Salad Wrap as being like Superfund V, while Superfund A represents most of the index-hugging Industry & Retail Funds out there.
Yes, the sharemarket did rally for the vast majority of 2021, and yes due to its defensive nature the Tuna Salad Wrap did miss out on some of this growth.
However, we maintain that just like Superfund V, the Tuna Salad Wrap will lose a lot less money in the pending correction, and we look forward to moving our investors back to our more aggressive Reuben Sandwich somewhere near the bottom of the trench, to send our investors skyward again.
To recap on why we believe a sharemarket correction is imminent, please read https://thevirtuouscollective.com/uncategorized/global-sharemarkets-are-crashing-and-i-couldnt-be-happier/
Also, Happy Easter from the Team at VCo!
You keep your family safe, and we’ll keep your portfolio safe 😊