The dangers in cherrypicking data

This post follows on from my previous one, where you may recall that I was worrying about having done something wrong.

So that you don’t necessarily have to read it again, I was discussing the ludicrous scenario where an investor switches, at the start of each year, into the asset class that performs the best over the whole of that year resulting in frankly awesome returns. A scenario, by the way, that had made it into the newspapers.

I chose to ignore this unbelievable scenario.  Not unbelievable because of the returns – they’re there for the world to see, but unbelievable because as I pointed out, one has to be either magically psychic to utilise this strategy, or be in a position to influence the world’s financial markets.

My fears about having botched this exercise were not necessarily mistaken: I had done everything right with the data that I had.  Let me digress for a moment and point out a couple of things that I didn’t mention.

Interesting superannuation comparison

I found an article that went nationwide in Wednesday’s News papers interesting.

The centrepiece of this article was data obtained from SuperRatings in tabular form that purports to show that if a super investor invested $10,000 into superannuation on 1 July 2002 and switched on 1 July of every financial year into the best performing asset class of that year, they would have amassed a total investment of $37,000-odd by the end of June 2012.

(Source: The Advertiser)

The survey appears to ignore the impact of tax, transactional costs such as entry fees, switching fees, buy/sell spreads and contributions tax as well as earnings tax.  However, the end result is impressive.

Why I'm starting this blog

Right about now, there are a lot of mums and dads who quite possibly feel let down and ripped off by the superannuation machine.  The central reasons are many and if truth be told, I could go after any of them. In actual truth, I don't think that there's much that is wrong that is major, but I wouldn't be doing this blog, if I didn't think that it might help fix some of these bits that need fixing. And eventually, I might get round to looking into more of these issues.

I’m planning to start with asset allocations, in particular, the rather annoyingly-named 'balanced' option, but there's a whole bunch of other things that need to be looked at as well.

If you think during any of this that I'm making any financial (or other) recommendations, please consider yourself corrected.