Outperforming the market is hard without a crystal ball. Here's how to tilt the odds in your favour.
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When you look at the long-term equity index charts moving up and to the right, it’s easy to forget the individual stocks underpinning the indices don’t move up and around as a unified block.
This has important implications for how you try to extract returns from the equity markets and the approach you take to building a quality portfolio.
Beating the performance of the broader share market in any one year isn’t an easy task and, when you look at the data and the facts, the truth is it’s way harder than most people think.
And, as you would expect, it’s even more difficult to beat the market’s performance over multiple years, let’s say over five, 10 and 15 years.
In essence, that’s the Herculean task faced by all active investment managers – whether they be professionals running large portfolios or individual investors with a small portfolio of hand-picked stocks. That is, if you’re investing actively, your whole modus operandi is to beat the broad market averages like the S&P/ASX 300.
Global index provider Standard & Poor’s measures the performance of active fund managers over time. The 2022 S&P Index Versus Active scorecard, widely known in investment circles as SPIVA, showed 57% of actively managed large-cap Australian equity funds (funds that invest in a selection of the largest Australian companies chosen by an investment team) underperformed the S&P/ASX 300 Index last year.
The SPIVA report also shows that active underperformance rates over the longer term were even more dismal.
Over five, 10 and 15-year time horizons actively managed large-cap Australian equity funds underperformed the S&P/ASX 300 Index by 81%, 72% and 83.5%, respectively.
The takeaway here is, when investors go active, they are more likely to be in the long-term majority of the distribution that underperforms rather than the smaller percentage that outperforms. This isn’t just an Aussie thing. We see similar results in equity markets all around the world.
Source: Standard & Poor’s
Costs are a headwind to active
All investors are subject to the costs of participating in the market.
These costs include management fees, bid-ask spreads, administrative costs, commissions, market impact and, where applicable, taxes. These costs can be high and reduce investor returns over time.
And costs create a hurdle that must be overcome to beat the market averages.
Because the average costs of active management are typically much higher than those of index funds, this is a strong headwind that diminishes the chances of successful active outperformance.
The equity market is “skewed”
Before I got into index investing, I assumed that half of all stocks outperformed a market index and the other half underperformed in a given year.
Successful active stock picking meant selecting from the top half, avoiding the bottom half, and making massive amounts of money, or “alpha” as the pros call it.
Unfortunately, that’s not the way equity markets really work. In reality, there are huge tails when you look at the extreme over- and under-performers in the market. This asymmetry is what we call the “skewness” of equity returns.
As shown in the chart below, a positively skewed distribution has a tail which is more pronounced on the right side (positive) than it is on the left (negative).
In a positively skewed distribution, there are a few really large data points way out in the tail that pull the average up. That is, the mean (average) is greater than the median (middle), with the most extreme values on the right side.
Source: Vanguard
When thinking more deeply about equities, we might intuitively suspect there is a natural tendency towards a right skew—after all, a stock can only go down by 100%, while it can appreciate by way more than that. A handful of stocks go up by 200%, 300%, 500% or 1,000%, and that’s where the bulk of equity index returns really come from.
What this means for investors with a well-diversified portfolio is they typically experience frequent small losses from the majority of stocks, but a few exceptionally large gains from a subset of their holdings.
In 2022, roughly a third (33%) of the top 300 companies outperformed the return from the S&P/ASX 300 Index. So, to outperform the market, an active investor needed to be concentrated in that 33% of outperforming companies.
The 10-year period from the start of 2012 to the end of 2022 shows only 17% of the companies in the S&P/ASX 300 Index beat the performance of the broader market average over that time. Furthermore, the top three ASX stocks (Commonwealth Bank, CSL and BHP) accounted for 24% of the total index return.
This skewness becomes even more pronounced over the 20 years from the start of 2002 to the end of 2022. Only 6% of the companies in the S&P/ASX 300 Index beat the performance of the broader market over this time, with the top three stocks (BHP, Commonwealth Bank and Westpac) accounting for almost one-third of the total index return.
Put another way, if an active investor didn’t have those three particular stocks in their portfolio they would have missed out on a fair chunk of the market’s return.
Source: Standard & Poor’s
Striking a balance: Index + Active
So, how can investors position their portfolio to take advantage of this skewness of equity returns?
If there is one takeaway, it’s that index managed funds and exchange traded funds should be a consequential piece of a core equity portfolio.
Think of broad-based index funds as a way to “tame the skewness” of equity markets because they capture the upside of those extreme winners and tilt the odds in an investor’s favour. It’s simply the most efficient way to capture long-term equity market returns.
Now you know why the search for winning active fund managers is a tough and ultimately unrewarding one for most investors. So, consider dialling back your active exposure and dialling up your index exposure.
The core/satellite approach to building a portfolio is a great framework for blending both index and active. Start with a broadly diversified index core holding. Then add some small low-cost active satellite holdings around the margins where you have conviction, unique needs, or access to a truly talented active manager to round it out.
Important Information
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (“Vanguard”) is the issuer of the Vanguard® Australian ETFs. Vanguard ETFs will only be issued to Authorised Participants. That is, persons who have entered into an Authorised Participant Agreement with Vanguard (“Eligible Investors”). Retail investors can transact in Vanguard ETFs through Vanguard Personal Investor, a stockbroker or financial adviser on the secondary market.
We have not taken your objectives, financial situation or needs into account when preparing this publication so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for Vanguard’s products before making any investment decision. Before you make any financial decision regarding Vanguard’s products you should seek professional advice from a suitably qualified adviser. . The Target Market Determination (TMD) for Vanguard’s ETFs include a description of who the ETF is appropriate for. You can access our IDPS Guide, PDSs Prospectus and TMD at vanguard.com.au or by calling 1300 655 101.
General Advice Warning: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Retirement Planning
Retiring on your own terms is not always easy to achieve, however it is evident that those who plan for retirement are more likely to do so. Results also show that obtaining professional help during the pre-retirement years further improves the probability of attaining your retirement objectives.
The earlier you start implementing a plan the better the outcomes.
During one’s working life there is always an income to make ends meet when raising children, paying off a mortgage, etc.
Retirement planning is about the lifestyle you will have after you stop work and receiving employment income. Planning focuses on issues such as how much superannuation is enough, taking a super pension, claiming the Age Pension, making superannuation contributions while receiving a pension from a super fund, estate planning and looking after your family.
Planning properly is becoming even more important now we are expected to live longer. This greater need means that professional help has never been more important.
At Wybenga Financial we will provide the time and expertise needed to help you implement the best pre-retirement plan possible. Contact us today to discuss how we can work together on: (02) 9300 3000 or .
Building Wealth
Investing your hard earned savings can be a complex task. There are many issues such as levels of risk, market timing, asset classes, and your own goals, objectives and preferences that need to be considered. It can often seem a daunting task. At Wybenga Financial we have the expertise to assist you in taking control of your finances and making sure you are generating the wealth you need both now and in the future.
The first step is to create a plan. At Wybenga Financial we take great care in getting to know our clients and their future goals and objectives. We combine our knowledge of your personal goals together with an analysis of your current situation, to create a detailed, personalised plan that will help you meet your objectives. This plan will become your road map which outlines how we are going to meet your goals, whilst aligning all investment decisions to your specific risk tolerance.
After we have created your personal plan, we move to implementation. This is where we action the immediate changes set out in your plan, and put in place reminders for anything that is to occur in the future. As your professional advisers, we can action many steps on your behalf making the implementation of changes as painless for our clients as possible. We aim to make the process smooth and seamless, providing a holistic service that can be executed with ease.
The final and most important phase of the relationship with Wybenga Financial is the ongoing management of your wealth. This ensures you are sticking to your plan and that your portfolio is aligned to your needs and attitude toward risk. An ongoing relationship ensures that we know when your circumstances change and that these can be recognised and reflected in changes to your investment approach.
While we are reviewing your portfolio from the perspective of your personal goals and situation, we also take into account the wider economic landscape and changes to legislation. We continually review and analyse our preferred investments in a structured and objective way. The benefit to our clients is that we are unemotional. This can be significantly beneficial over the long term.
At Wybenga Financial we can provide the time and expertise that will help you invest intelligently and prudently. Contact us today to discuss how we can work together: (02) 9300 3000 or .
Personal Insurance
Life insurance isn’t just a cost, though it often feels like it. You buy peace-of-mind that should a serious issue effect you then the consequences won’t unduly affect your family. Insurance provides you with the ability to manage the financial and emotional impact of some of the more drastic events, whether personally or in your small business.
Insurance can’t replace a loved one but it can help reduce the financial burden by providing the capital to ensure your family has choices.
Many Australians are underinsured and the consequences can be very serious for families should there be a death or serious injury. A yes to any of the following questions means you may have a need for insurance coverage:
Do you have a mortgage?
Do you have school fees?
Do you have any personal loans?
Do you have any credit card debt?
Do you have dependents?
Would your financial position be affected if you were to suffer from an illness or injury?
Do you want to have enough capital to look after your dependents if you were unable to care for them for an extended period of time or perhaps indefinitely?
We understand that it can be difficult determining the type and level of cover you might need, let alone choosing an insurer. We can assist by helping you determine your needs and recommend an insurer that is right for you.
At Wybenga Financial we know how to protect your wealth and will recommend solutions that best suit your needs. Contact us today to discuss how we can work together: (02) 9300 3000 or .
Superannuation
Superannuation is mandatory but taking an early and active interest in your retirement planning is critical to ensuring your benefits are maximised by the time you retire. Many will have a superannuation scheme through employment but increasing numbers are starting their own Self-Managed Super Fund (SMSF).
For many, simply relying on employer contributions may not be enough to provide the lifestyle you desire at retirement. We can assist in building strategies to ensure your retirement goals are met and your required lifestyle is maintained throughout retirement.
It is always best to start saving and planning for your retirement as early as you can.
At Wybenga Financial we know our job is to help you meet your retirement needs and we have the skills and experience to do this for you. Contact us today to discuss how we can work together: (02) 9300 3000 or .
Self Managed Super Funds
Self-Managed Superannuation Funds (SMSFs) offer a good strategy option for many individuals, families and small business owners to build tax effective wealth and to protect assets over time. SMSFs are becoming popular for those who are ready to take control of their own super investments as they give you ultimate control and flexibility to manage your retirement benefits.
It must be noted though, that you will have increased responsibilities as a trustee of the fund. As a SMSF Trustee you need to keep up to date with all required regulations and keep up with the fast paced financial markets.
Wybenga Financial can work with you to understand your personal financial situation and decide whether a SMSF structure is appropriate for you. We will also make sure your assets are invested in the most effective way to maximise your retirement benefits.
Should you wish to consider establishing a SMSF then we can help with all aspects of the process from establishment to managing your compliance obligations.
Wybenga Financial would welcome the opportunity to discuss how we can help maximise your opportunities to grow your wealth through a Self Managed Superannuation Fund (SMSF). Contact us today to discuss how we can work together: (02) 9300 3000 or .
Estate Planning
Your estate is made up of everything you own. This includes your home, property, furniture, car, personal possessions, business, investments, superannuation and bank accounts.
Having an estate plan is extremely important. Having a will is just the first step in your estate plan. It is critical to consider what outcomes you would like for your estate and to ensure a plan is in place to achieve those outcomes, both including and beyond the terms of your will.
Wybenga Financial would welcome the opportunity to discuss how we can help ensure your estate is organised to ensure your plans are implemented as you wish. Contact us today to discuss how we can work together: (02) 9300 3000 or .
Finance
Loans and loan management are central to overall financial management. Obtaining the the most appropriat loans for your needs is crucial and Wybenga Financial can help you with solutions that meet your short and long term needs.
At Wybenga Financial we work with experienced mortgage brokers that can assist you in obtaining the most appropriate loan for your needs and objectives. Whilst this is an external service, we work closely with the brokers to ensure the process is as easy and smooth as possible.
Contact us today to discuss how we can work together: (02) 9300 3000 or .
Property
We have partnerships with many respected property agents and research firms. This enables us to source suitable properties for individuals, couples and families looking to make an investment into property.
At Wybenga Financial we will assist you implement the most appropriate property investment plan possible. Contact us today to discuss how we can work together: (02) 9300 3000 or .
Strategic Planning
Strategic planning is determining how an investor is going to meet their goals and objectives. It is about helping clients define their goals, gathering information and analysing data to make a plan, then implementing the plan and reviewing the results. It is also reviewing and updating goals and objectives as clients move through different phases of life.
At Wybenga Financial, this is the most critical service we provide. For more information please visit our Building Wealth through Strategic Planning page or contact us to discuss how we can work together: (02) 9300 3000 or .
Financial Videos
Secure File Transfer
Secure File Transfer is a facility that allows the safe and secure exchange of confidential files or documents between you and us.
Email is very convenient in our business world, there is no doubting that. However email messages and attachments can be intercepted by third parties, putting your privacy and identity at risk if used to send confidential files or documents. Secure File Transfer eliminates this risk.
Login to Secure File Transfer, or contact us if you require a username and password.
General Calculators
Please enjoy the links to these free tools supplied by MoneySmart – a great resource for general financial information. Please get in touch if you would like to discuss any questions that you may have as a result of using these calculators.
Tess has been working in Chartered Accounting Firms since 2001 and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.
Since 2016, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.
Tess’s mission is to bring the ethics and integrity of her Chartered Accounting background to the area of wealth management.
As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.
Using her depth of knowledge and experience in tax and accounting Tess is able to demonstrate a level of competence that is unique in the Financial Planning sector.
2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
2004 – Graduated Masters of Commerce from the University of New South Wales
2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia & New Zealand
2007 – Promoted to Manager at Wybenga & Partners
2012 – Appointed as Associate Director
2015 – Awarded a Diploma of Financial Planning
2016 – Appointed as Director of Wybenga Group Pty Ltd, Wybenga & Parthers Pty Ltd and Wybenga Financial Pty Ltd
Schedule a Meeting with Tess
Adam Roberts
B.Bus, B.Sc, CA, DipFP
Adam has been working in Chartered Accounting Firms since 2005 and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.
Since 2016, Adam has turned his attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial. Adam specialises in Financial Planning, wealth accumulation, portfolion management, tax and investment strategies including structuring investments and superannuation, and insurances.
Adam’s mission is to bring the ethics and integrity of his Chartered Accounting background to the area of wealth management.
Combining traditional accounting and financial services has been a welcome move for Adam, allowing him to operate and advise in the financial sector that has been a long time personal passion.
Using his depth of knowledge and experience in tax and accounting Adam is able to demonstrate a level of competence that is unique in the Financial Planning sector.
2005 – Graduated Bachelor of Science from the University of Western Sydney
2005 – Commenced employment with Wybenga & Partners and part-time accountancy studies
2007 – Graduated Bachelor of Business from the University of Western Sydney
2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia & New Zealand
2010 – Promoted to Manager at Wybenga & Partners
2012 – Appointed as Associate Director
2015 – Awarded a Diploma of Financial Planning
2016 – Appointed as Director of Wybenga Group Pty Ltd, Wybenga & Parthers Pty Ltd and Wybenga Financial Pty Ltd
Schedule a Meeting with Adam
Advisory Cadetships
What is an Advisory Cadetship? An Advisory Cadetship enables you to commence your career whilst attaining the necessary university qualifications by studying part-time.
How does it work? Generally, our cadets complete a relevant business or accounting degree at the University of New South Wales, the University of Technology Sydney, Macquarie University, or the University of Western Sydney.
The Firm provides 3-hours paid study leave per week to attend university. This can either be taken at the one time or broken between days depending on the individual’s requirements. In addition, the Firm provides paid study leave for both mid-semester and end-of-year exams.
We take the work life balance very seriously at Wybenga Financial and our cadets are encouraged to have a fulfilling life outside the office. A typical day will have you arriving at the office at around 8.30am with most days concluding at 5.30pm.
What are the benefits of an Advisory Cadetship with Wybenga Financial? Our cadets benefit from the following:
Career path – on completion of their degree our cadets have significant practical experience which will assist them in advancing their careers
Work helps your studies – by working full-time our cadets are able to apply their practical knowledge in the university subjects
Camaraderie with other cadets – the Firm has a number of cadets at various stages of their career
Mentoring – cadets are paired with a senior staff member who oversees their progress and training both at work and with their studies
Communication and feedback – the Firm has an open door policy which enables all cadets to interact with all members of staff including Directors
Culture – the Firm promotes a friendly social culture with a number of functions throughout the year
Modern environment – including ‘socialising’ areas such as pool table and break out area
Training – ongoing support and technical training. We also provide internal and external training on a monthly basis
Remuneration – working full-time provides a market salary and independence with salaries being reviewed every 6-months
What happens when I complete my degree? The completion of your degree is the first step of what we hope to be a long and successful career with us. The next step is the commencement of a Diploma of Financial Planning followed by completing the requirements to become a Certified Financial Planner (CFP).
There are always progression opportunities for the right cadets and we are dedicated to the long term development of our staff.
Who should apply? Current Year 12 students or first/second year University Students who:
want to commence their career in financial advisory;
are due to commence or are currently completing a part-time business or commerce degree at university with an advisory major;
want to gain valuable hands-on experience while completing their qualifications;
are looking for a friendly working environment;
are team players who display initiative;
have a commitment to self-development;
possess excellent personal presentation and communication skills; and
are motivated and mature minded.
How do I apply for an Advisory Cadetship? To apply for a Cadetship position at Wybenga Financial send us your details. Please also include in your covering letter why you wish to do a cadetship, include relevant qualities you possess, main interests / achievements, and any previous employment.
Interested candidates should initially forward a resume/covering letter of no more than 3-pages. Please provide full details of contact information (telephone or e-mail).
What if I have more questions? For further information about our Cadetship program, please send your enquiry to .
