For many young Australians, breaking into the world of investing during a time where global volatility seems to only be getting more unpredictable might seem unachievable and conservative, tried and tested investment strategies, might seem the most appealing.
However, appearing on the ifa Show Podcast, Omura Wealth Advisers director Terry Vogiatzis highlighted that, in this world of instability, conservative investment might only get one so far.
“Doing nothing or sticking to the status quo will probably leave you OK, but the question younger clients should ask is: could it be better? The opportunity cost of being conservative for too long is massive,” Vogiatzis stated.
“Young clients often don’t realise the cost of missing out on higher long-term returns. The maths shows that even small differences in return, when compounded over decades, completely change the outcome.”
He explained: “The compounding impact of investing in growth versus defensive assets is huge. Ten thousand dollars in bonds might become $40,000 to $50,000 over 30 years, but equities would be around $180,000. The difference is obvious.”
However, this strategy is not a one size fits all, working best for younger clients and investors who have money to spare now. For those who have shorter-term goals, aggressive investing might be out of the question.
“Volatility only really hurts if you need the money soon. For long-term money, especially super, volatility is your friend – it creates opportunities,” Vogiatzis said.
“Being aggressive does mean higher volatility, but for younger people that volatility is largely irrelevant. What matters is ending up with a far higher balance decades down the line.”
For advisers with younger clients looking to adopt a more aggressive strategy, Vogiatzis highlights that education and understanding is key to keeping them on track.
“Some young clients are nervous about going aggressive, but once they understand the opportunity cost, they realise the bigger risk is being too conservative for too long.”
He added: “Short-term fear leads some younger investors to pull back, but that fear can cost them hundreds of thousands – sometimes millions – over their working life.
“For someone with a really long investment horizon, it’s just about investing as aggressively as possible – or at least educating them on the maths behind it. The statistics overwhelmingly suggest going aggressive at a young age is highly beneficial.”
To hear more from Terry Vogiatzis, tune in here.
