[committee] Protecting the rainy day fund

[Luke Williams]

On Fri, Oct 15, 2010 at 8:43 PM, Scott Young <splintax at ucc.asn.au> wrote:
> Can you cite a source for this? This page:
> https://onlineinvesting.westpac.com.au/Private/ManagedFunds/FundSearch.aspx'
>
> ...suggests that the majority of the 'defensive' (lowest risk level)
> funds returned less than 5% pa, although I'm not sure what period they
> are referring to. Even the 'growth' funds had a median return of
> around 1% pa, which seems pretty low. Am I misinterpreting this data
> somehow?
>

If you're looking at the median rates over a number of years, you
should know that high-interest (ie: above the cash rate) term deposits
are a recent development [1] and are not a sure thing to continue far
into the future - so it would be folly to look at the 7% you might get
now and use that to compare the returns on other investments in the
past or to speculate on what might happen in the future. Historically,
term deposits barely beat inflation. The site you linked to lists all
the managed funds that Westpac offers to its customers, the ones they
endorse on their main website are a small subset of these[2] and these
were what I was looking at. The ones I looked at all beat the cash
rate over the recommended investment term (sometimes a bit longer, but
almost always eventually) and many of them beat their benchmarks,
despite a global financial crisis right in the middle of it, which
would certainly have skewed the numbers.

Luke

[1] Graph 5, "Effects of the Crisis on the Deposit Market",
http://www.rba.gov.au/speeches/2010/sp-ag-190510.html
[2] http://westpac.com.au/personal-banking/investments/managed-funds/bt-investment-funds/
and adjacent pages