Celebrate Market Performance

What a year 2017 was for investment markets with equities providing double digit returns across the board with Asian Shares being the outstanding performer with a whopping 41.10% return. Australian Shares were more modest with a 10.15% return while International Shares as a whole had a return of 20.25% for the year.


In this growth stage it is understandable that defensive assets such as fixed interest and cash did not perform quite so well, with International bonds performing the best of the defensive assets at 7.70% and cash having a 12 month return of 1.7%.


While we should celebrate the performance, the job is only half done as this performance may have done some interesting things to portfolios and in particular asset allocations.


Many clients come to us with a default Balanced portfolio (as listed below) within their super and investments, if we assume this, then the asset allocation as a result of 2017’s performance may have the following unintended asset allocation changes.

As you can see, the risk of this portfolio is now greater than what is was a year ago with an extra 2% allocated to growth assets and in particular to International Shares. The longer this goes on the more variance the portfolio will have from the initial allocation if your portfolio is not reviewed regularly.


You may think that this is a good idea as it means that more funds are allocated to the highest performing asset class of the previous year and less funds are allocated to the lowest performing asset class of the previous year. However this is often not the case.


The below table shows the return of each developed market (the different colours) from 1997 to 2016 as at the time of this writing the 2017 figures had not yet been updated.



As you can see the returns are completely random and what happens one year has no impact on what may happen in future years. Very rarely does the previous best performing market continue to be the best performing market in the next year and it may even turn into the worst performing market. The reverse is also true when it comes to poor performing markets.


A set and forget investment strategy may seem simple and a good idea, but it can result in you taking on more risk (or less risk) than what you initially intended. This means that your portfolio may not match your intended return characteristics and you may find yourself disappointed in the outcome.


At JBS we regularly revisit our clients portfolio’s to ensure that they continue to match expectations around risk and returns. If you would like us to review your investment allocation to ensure it continues to match your goals, call one of our financial advisers who will be happy to help you.


– Liam Rutty –

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