I explained that such comparisons were dangerous as the definition of “Balanced” differed between providers and often contained up to 80% growth assets. I also explained that the fund objectives were important in analysing returns as, in this case, reliable income was the priority. Also, comparing performance against a non-pension paying super fund is not appropriate as the compounded earnings factor comes into play.

I undertook to carry out further research for this client to clarify the position for them.  I discovered that the realistic asset allocation comparison of the funds surveyed was “Conservative” or “Conservative Balanced” and the general asset allocation of “Balanced” funds was indeed much more aggressive and not income oriented.

Having made the comparison between my clients’ performance and a sample of five major industry funds surveyed over a period of five years I was able to clearly demonstrate the following outcomes:

• Our clients’ fund considerably outperformed the comparison funds
• Our clients’ average income rate was 5.9% per annum in a period of historically low interest rates
• There was considerable unrecognised growth potential within our clients’ portfolio

The purpose of this blog is not to brag about results. It is to illustrate the importance of applying appropriate and accurate measurement of fund performance.

We are all individuals with different needs and objectives, and with different attitudes to risk. The priority of any financial or SMSF strategy is to focus on specific objectives – short, medium and long term. Then it is up to the individual or their professional financial adviser to design a strategy that can achieve those objectives.  After this it is a matter of assessing the perceived risk associated with the strategy to ensure that it is acceptable to the individual.

The measurement of the investment strategy should then be based on the progressive achievement of the stated objectives ongoing with adjustment for lifestyle changes as they occur.

Making short term, snapshot judgements based on inappropriate comparisons is a recipe for poor decision making and potential for failure. That is not to say that comparisons between funds should not be made but those comparisons must be made against portfolios of similar asset allocations and objective outcomes i.e. pension funding or asset accumulation.