A rear-vision roadmap to greater retirement heights

Future investment returns are unknown, but past returns are a guide for retirement.

If you’re a member of a superannuation fund, for all intents and purposes you’re a long-term investor.

After all, most of us will be receiving regular compulsory Superannuation Guarantee contributions from an employer for at least 40 years, assuming we start work in our early 20s and retire sometime in our mid-60s.

And that money will invariably be pooled with other people’s money by your super fund and invested, most likely into a range of investment asset classes. There’s a strong chance those asset classes will include Australian and international shares, listed property securities, Australian bonds, and cash.

So, you may find it interesting to see a long-term perspective of how those particular asset classes have performed for investors generally – including super fund members – over time.

That’s where the annual Vanguard Index Chart comes in, as it provides a clear perspective on the investment performance of major asset classes over the last 30 years.

Think of it as a rear-vision roadmap to retirement for someone who started receiving compulsory super contributions three decades ago. No one ever knows what’s ahead of us in terms of future investment returns, however the Vanguard Index Chart does show what they have done over time.

The latest chart shows how a range of different asset classes performed over the 30 years from 1 July 1994 to 30 June 2024 based on an initial $10,000 investment.

Click here to view the latest Vanguard Index Chart.

The dollar figures are calculated on the basis that all of the distributions over that time frame, including interest and dividends, had been reinvested back into the same assets to maximise the effect of compounding returns. The numbers exclude any investment fees or taxes.

Asset classes perform differently from year to year, but the historical data going back for decades shows that despite short-term price dips, asset classes have delivered solid growth over the long term.

Staying the course, and not being distracted by short-term market noise, is just as important in your pension phase as it is at any other time.

The importance of diversification

Investing across a range of asset classes helps to smooth out poorer returns from some asset classes from year to year.

There have only been a handful of occasions when the same asset class has been the best-performer in consecutive years. As such, chasing the last year’s returns is usually a futile exercise.

Asset allocation is often a complex exercise for investors, because it can be difficult to know how much to invest into different asset classes at different stages of life, including in retirement.

That mostly comes down to one’s investment risk profile (personal appetite for lower or higher-risk investments).

This is where superannuation lifecycle products that have been designed to smoothly adjust asset allocations according to an investor’s age are providing a seamless solution.

This provides members age-appropriate asset allocation adjustments and the peace of mind of automatic de-risking of their portfolio leading up to and during retirement.

For example, Vanguard Super’s lifecycle option adjusts 36 times over the course of a member’s life and harnesses the Vanguard Group’s extensive experience in lifecycle fund management and low-cost index investing.

Lifecycle members aged 47 and under are invested in a diversified portfolio with a higher allocation to growth assets. From age 48, the Lifecycle investment undergoes a series of annual changes reducing the allocation to growth assets, while increasing the allocation to defensive assets.

From age 82 onwards, the asset allocation is designed to have a greater emphasis on reduced risk to shield retirement savings from the impacts of volatility.

A long-term savings journey

Building up savings for retirement via super, and even outside of super through other investments, is typically a long-term process.

And the preparation journey doesn’t necessarily end at the point of retirement either. Because the process of investing generally needs to continue during retirement to ensure your accrued investments can keep compounding over time to support your lifestyle when you’re no longer receiving a salary.

Retiring from work shouldn’t equate to retiring from managing your investment portfolio.

Taking an active role in your investments, to ensure you have the best chance of protecting and growing your capital over time, is just as important in retirement as it is before you stop working.

Staying the course

An advantage of investing via your super fund is that your money is essentially locked away until you reach a condition of release, usually your retirement. During your super accumulation years you are more or less locked into staying the course.

Yet staying the course, and not being distracted by short-term market noise, is just as important in your pension phase as it is at any other time. What happens in the financial markets day to day typically has minimal impact over the longer term.

As such, it’s always important to focus on the things you can control in retirement.

This includes reviewing your spending regularly and making sure you’re invested in products that have low management costs. After all, the lower your investment costs the more money you get to keep.

And finally, stay diversified. Diversification will offset the risks of being too exposed to one asset class.

The best approach to help protect your retirement nest egg is to apportion your funds across different asset classes, such as shares, bonds, property, and cash.