Short-term investment strategy focused on past performance of managed funds can be detrimental to the long-term financial goals of investors, according to an academic paper by researchers at Griffith University.
According to research conducted by Griffith Business School senior lecturer Dr Rakesh Gupta, which analysed data from more than 20,000 individual managed funds, asset allocation in Australia is worryingly focused on fund returns.
Dr Gupta points out that Australia, at an average of $63,794 per person, has the world’s largest per capita investment in managed funds and that investors need to take advantage of the super fund flexibility rules introduced by the federal government in 2005.
“Investors need to ask themselves, ‘If they give me the choice, am I the right person to make that choice?’” the researcher said.
“They may end up pursuing short-term strategies purely based on past returns of the funds, which can be detrimental to their long-term investment goals.
“Misallocation of funds by uninformed investors may result in significant underperformance of portfolios, leaving the public sector, and ultimately the taxpayer, left to service and support retirement. This is money down the drain in every respect.”
Dr Gupta also highlighted the importance of professional financial advice in assisting investors in pursuing an appropriate investment strategy.
“There is also widespread reluctance among investors to seek financial advice,” he said. “There needs to be a change in mindset. People need to think about the bigger financial picture and see past the accountant they visit once a year.”
The academic paper will be published in an upcoming edition of the Accounting Research Journal.
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