Compared to other countries around the world with large retirement schemes, Australians have distinct preferences for where they put their savings.
Countless studies over the years have shown that in terms of reliable returns over the long run, asset allocation is just as important as being able to identify quality stocks, bonds, property or other assets to buy.
That’s important because this chart from a Credit Suisse research note on global demographics, out this week, shows that as a whole, Australia’s investing preferences are different from other countries with huge retirement schemes.
Australians’ savings are, compared to other countries, hugely more invested in stocks.
And there’s double-whammy in the tiny (minuscule, almost) proportion of money in bonds.
To illustrate just how small that 15% really is, consider that Credit Suisse, for the same research note, asked a number of different fund managers what their asset allocations would be for conservative, moderate, and aggressive portfolios. Merrill Lynch’s aggressive portfolio would have 20% bonds in it.
Under the “other” column we can include houses and units, and Australians’ never-ending love affair with property explains some of the unique shape to Australia’s retirement investment profile.
There are a few factors at play here, especially the investment mandates of the superannuation funds which often say the fund must have a certain allocation to Australian assets, including equities. Compulsory superannuation contributions of more than 9% of every worker’s earnings have ballooned Australia’s retirement savings to $2.05 trillion at the end of March quarter this year.
If 51% of that is in equities, that’s a trillion dollars in stocks Australians are holding to fund their retirement.
Stocks in Australia and overseas have made strong gains in recent years. This is excellent news for Australians’ retirement funds.
But it also could have significant repercussions – especially with the low exposure to fixed income – if Australian and global stocks take a turn for the worse.