Australia: Be careful of investment myths when making your New Year’s financial resolution
31 December, 2003
Navigator today warned investors to be careful of "investment myths" before committing to a New Year's financial resolution.
Stuart Fechner, Navigator research manager, said investors should seek out independent financial advice before committing to a New Year's financial resolution.
"It's easy to fall into the trap of believing in an investment myth. For example, I often hear unfounded comments about whether you're better off investing into last year's worst-performing asset class or chasing the one that has just provided the best return.
"Some investors decide to invest into the last year's worst-performing asset class in the belief that returns can only get better the next year - this is sometimes referred to as a 'contrarian' approach to investing," he explained.
"The opposite is when investors decide to invest into the asset class with the highest return from the previous year, in the belief that its success will continue the next year - this is sometimes referred to as a 'chasing' approach to investing.
"Navigator has analysed the historical outcomes of these two alternative and opposing investment strategies utilising the returns achieved by the standard benchmark index of each asset class. On a calendar year basis in the period from 1985 to 2003, the "contrarian" investment approach would have returned an average of 15.1% pa for the investor, compared with an 11.1% pa return for the "chasing" investor," Stuart said.
"However, if we analyse the historical outcomes of these approaches on a financial year basis over the same period, the 'contrarian' investment approach would have returned an average of 9.4% pa for the investor, compared with an 11.9% pa return for the 'chasing' investor," Stuart said. "The outcome has turned on its head as this time the 'chasing' strategy has provided the best outcome!
"In summary, unfortunately there is no magical investment strategy, at least that we know of, that works all the time.
"For your New Year's financial resolution, avoid the investment myths and seek independent financial advice," he said.
- End -
For further information, please
contact:
Stuart Fechner
Navigator Research Manager
Mob 0407 839 080
Notes to editors:
- Performance figures utilised are those provided by the
following indices
- S&P/ASX All Ordinaries Accumulation Index
- MSCI World ex Australia Net Index in $A
- UBSWA Composite Bond All Maturities Index
(Commonwealth Bank Bond Index prior to 30/9/89)
- Citigroup World ex Australia Government Bond Index in $A
(hedged)
- S&P/ASX 200 Property Trust Accumulation Index
- UBSWA 90 Day Bank Bill Index
- Aviva Australia is a group of two specialist financial
services companies: Navigator and Norwich Union Life Australia
Ltd. Portfolio Partners, the Australian funds management arm of
Aviva plc, is a sister company. Through these companies we provide
products and services in the areas of wealth creation, wealth
management and wealth protection for more than 300,000 customers
throughout Australia.
- Globally, Aviva Australia is part of Aviva plc, the world's
seventh largest insurance group, the largest insurer in the UK and
one of the top five life companies in Europe. Aviva was formed in
May 2000 through the global merger of CGU plc and Norwich Union
plc.
- Aviva is the world's seventh-largest insurance group and the
biggest in the UK. It is a leading provider of life and pensions
products to Europe and has substantial businesses elsewhere around
the world. Its main activities are long-term savings, fund
management and general insurance. It has premium income and
investment sales from continuing operations of A$68.32 billion,
and more than A$488 billion of assets under management (as at 1
July 2003). The group has more than 59,000 employees and 25
million customers worldwide.
- The information in this document reflects Navigator Australia
Limited's ('Navigator') understanding of existing legislation,
proposed legislation, rulings etc as at the date of issue. In some
cases the information has been provided to us by third parties.
While it is believed the information is accurate and reliable,
this is not guaranteed in any way. The information is not, nor is
it intended to be, comprehensive or a substitute for professional
advice on specific circumstances. The securities advice or
information given in this document is of a general nature and has
not taken into account the investment objectives, financial
situation or particular needs of any particular person. Before
making an investment decision on the basis of the advice above, a
prospective investor needs to consider, with or without the
assistance of a professional adviser whether the advice is
appropriate in the light of their particular investment needs,
objectives and financial circumstances.
- Applications to invest in a financial product issued by Navigator or any of its related entities must be made by completing the application form attached to the applicable Product Disclosure Statement ("PDS"). A PDS is available from Navigator or your financial adviser. Investors should consider the PDS before making an investment decision or deciding to continue to hold a product.
