Investors needed to tune out from industry noise when making investment decisions to strengthen portfolios and prevent churning, AMP head of investment strategy and chief economist Dr Shane Oliver has said.
Speaking at the 2015 SMSF Association National Conference in Melbourne last week, Oliver said that information overload coupled with behavioural tendencies could result in churning, as investors attempted to keep up with industry opinions.
“The problem is you’ve got this information overload – people are getting bombarded,” he said.
“As a former Reserve Bank of Australia governor said: ‘you can often get the impression that Australia is in a constant state of crisis.’
“The problem is when you combine that with behavioural bias, you get a quite bad result: investors churning.”
This had been compounded in recent years as information regarding investment decisions had become more readily available, Oliver said.
“When you look through time, we’ve got more information out there [now], but it’s interesting to note that the volatility of markets has not changed,” he said.
“On the one hand you could argue that the economic cycle has become more stable, central banks have become more predictable, [and] therefore the volatility should have gone down.
“But the reality is that the volatility has hardly changed, which suggests to me that there’s more trading going on, more churning going on – and that’s offsetting any greater stability you’re seeing in the underlying economic fundamentals.”
Instead of investing in accordance with market chatter, which could be confusing for many investors, Oliver recommended adopting a long-term strategy for investment portfolios.
This would provide stability to portfolios and increase their value, he said.
“For the average investor out there the best thing is to adopt a long-term strategy and invest in a fund which will try and do the timing for you or, alternatively, adopt [your own] long-term strategy,” he said.
“I think that’s the best approach for most investors.”''