Where have our actions led us? Ken Bailey from Bailey Capital Management explains why his most successful clients were those who held their nerve.

By its very nature, super is a long-term investment. That is, most Australians will hold their super over the best part of their working lives and many will roll their savings into a pension and remain invested throughout retirement.

We asked financial adviser, Ken Bailey, to explain the importance of keeping a long-term view, particularly in light of the recent global financial crisis (GFC).

Investing can be risky, but…the biggest risk we face is not having enough money to fund our retirement.

Ken Bailey
Bailey Capital Management

“When clients asked me about the impact of the GFC on their super, I reminded them to stay focused on their long-term goals by sticking to their investment strategy. This, I believe, is the key tenet of investing.”

One of the principles of behavioural finance says that investors feel the pain of loss more than they feel the euphoria of gain. What this means is that as investors, we tend to remember our sharemarket losses more than we remember the times when we’re successful. So it can be easy for us to forget that while super took a big hit in 2008, over the longer term, superannuation has in fact been a good source of steady investment returns. 

 “The beauty of super is that most people don’t need to worry about short-term performance, especially those who still have at least another ten years until their retirement.  For those people, my advice is to keep contributing and try to ignore short-term market movements.” 

Ken also explained that his most successful clients were those who held their nerve and remained invested in growth assets.  “While it wasn’t all smooth sailing along the way, they’re the ones who were rewarded by the market’s steady recovery since March last year,” he said.  

So while we did see negative super returns in 2008, superannuation consultancy SuperRatings has found that the average superannuation balance has returned 6.7% each year since 1992*.

“Investing can be risky, but what many people may not realise is that the biggest risk we face is not having enough money to fund our retirement. The message I gave my clients was to hold steady and not switch into cash as a ’safer‘ option. Those who adopted this advice have seen the recovery in their balances over the last year and those that chose to switch missed out.”

^*Source: SuperRatings, July 2009