Join our investing community

4-6 Years Investment Timeframe

Discussion in 'Managed Funds & Index Funds' started by BuffettTheDog, 6th Dec, 2011.

  1. BuffettTheDog

    BuffettTheDog Active Member

    Joined:
    22nd May, 2011
    Posts:
    35
    Location:
    Melbourne, VIC
    Just a question regarding investment timeframes. I was reading the article from the government MoneySmart website on medium time frames.

    I can understand the argument for stocks in a 20+ year timeframe, but looking at the returns of some managed funds in a 4-6 year timeframe, I’m not convinced about the outperformance of a balanced, conservative or bond fund as compared to a high interest online savings account. Can someone shed some light on this?
     
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    Investment time frames only apply for the 'Buy and Hold' strategy. If you are modifying your portfolio structure to suit the market, you don't need to worry about staying true to a financial plan.

    The cash rate has gone down 0.5% in two months. Who could have anticipated this? All asset classes are going up and down daily. Predicting when to buy Before a rise and when to sell Before a fall, is not part of B&H. It works on the premise that by the time you switch asset classes it is too late!

    Also take the 3/5/10 year %returns with a grain of salt.
    Why You Should Beware of First Dates


    Johny. :)
     
  3. Chris C

    Chris C Well-Known Member

    Joined:
    2nd Apr, 2008
    Posts:
    1,327
    Location:
    Brisbane, QLD
    My understanding is as a general rule of thumb that over a medium/long timeframe 80% managed funds won't outperform the index. Management fees erode too much of the return.

    Unless you are good at picking fund managers, a diversified and balanced portfolio is probably going to serve your better over the longer term.
     
  4. BuffettTheDog

    BuffettTheDog Active Member

    Joined:
    22nd May, 2011
    Posts:
    35
    Location:
    Melbourne, VIC
    Thanks. When you say it is relevant for a 'buy and hold' strategy, would an example of that be when your are aged somewhere between 65 to 80 and deciding to change your super plan from 'balanced' to 'conservative' (or 'conservative' to 'cash' depending on your risk-coping skills)?
     
  5. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    There are two investment stages in life. The 'accumulation' stage, in which you build a nest egg for your retirement. And, the 'draw down' stage, where you withdraw living expenses to replace your lack of wages.

    The ratio of bonds to equity changes as you get older. Bonds provide income while stocks provide growth and dividends. So as a retired person, a higher percentage of bonds for income, and safety, can be accumulated.

    There are some target funds that automatically change the Bond/stock ratio as you age. (Stocks=100-age) at 20y 80% stocks, at 40y 60% stocks, at 60y 40% stocks, and at 80y less than 20% stocks.

    Changing your bond/stock ratio is different to following hot money. (ei buying the latest trendy asset and selling the poor asset. Over the long term a lower return can be the result.)

    Studies have shown that asset allocation has a bigger effect on the return of a portfolio, than any other factor.


    Johny :)
     
  6. BuffettTheDog

    BuffettTheDog Active Member

    Joined:
    22nd May, 2011
    Posts:
    35
    Location:
    Melbourne, VIC
    Thanks. I remember reading somewhere that you can also use 110 if your risk-tolerance was particularly high or 90 if you are more conservative.