Ever think to yourself that every second vehicle on the road these days seems to be a four-wheel-drive? Australia’s demand for sports utility vehicles (SUVs) is clearly growing – and the statistics prove it.
The latest new vehicle sales figures from the Australian Bureau of Statistics show that the sale of new SUVs reached a record annual high in the 12 months to February. These vehicles accounted for more than 45 per cent of the combined passenger car and SUVs sold.
Anecdotally at least, many of the 418,691 SUVs sold over the last 12 months will rarely, if ever, leave sealed roads. Nevertheless, the owners are prepared for all-terrain driving, off and on the road, should the occasion arise.
And when it comes to investing, astute investors create all-terrain investment portfolios. These portfolios are designed to spread risks and opportunities throughout changing market conditions while working towards achieving an investor’s long-time goals in a disciplined way.
An appropriate strategic or target asset allocation and low investment management costs are two of the most significant characteristics of a robust, all-terrain portfolio.
Then it is critical to regularly rebalance a portfolio back to its strategic asset allocation to ensure an investor remains on course without being swayed by short-term movements and "noise" in investment markets.
A seminal investment research paper – Determinants of portfolio performance by Gary Brinson, Randolph Hood and Gilbert Beebower – confirmed back in 1986 that a broadly-diversified portfolio’s asset allocation is by far the primary driver of variations in its returns. (This research has periodically been revisited and updated, including from an Australian investor’s perspective.)
Further, other research suggests that cost is the most-reliable predictor of an investment fund’s future performance. In other words, low investment management costs really matter. (See The case for index fund investing in Australia, published by Vanguard.)
Given the growing popularity of SUVs, chances are that your vehicle is suitable for driving in difficult terrain. But have you an all-terrain portfolio in place to deal with the inevitable highs and lows of investment markets – along with the inevitable rough patches along the way?
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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