How to achieve 20 % return p.a. in your super
In my previous blogs, I discussed longevity, retirement income levels (basic, moderate, comfortable and aspirational), average super fund balances at different age groups and average achievable returns.
Average, “easy” returns of a diversified fund over the last 25 years are 7.4%; average long term buy and hold returns on domestic and international shares are somewhere between 8% and 10% p.a.
In order to achieve this average share return, the investor will face a drawdown (losing period) in a bear market (when all shares are falling in price) of somewhere between 30% and 50%+ at some point.
Also, a buy and hold approach has to cope with an occasional 10 year period with zero or close to zero return.
If these situations occur just as you entre retirement, you can easily get into financial trouble.
Also, buy and hold requires you to do nothing….surprisingly, this is easier said than done!
Human nature makes us value the pain of a dollar lost almost double as the joy of a dollar earned!
This means that as human beings we often tend to buy stocks after they already went up significantly (called FOMO – Fear of Missing Out); OR
We tend not to realise small manageable losses and we tend to sell our entire portfolio in disgust close to the bottom of the bear market.
So that makes this 8% to 10% buy and hold return rather theoretical.
As you can probably see, I’m not a fan of the buy and hold approach…I would rather stick my neck out (which arguably gives more control).
My investment objective in a super fund (without leverage) is 20% p.a. And a 15% return would be acceptable – still beating the benchmark significantly.