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Would Investors Have Benefitted from Staying with the Australian Share Market Through 2008 Instead of Being in the Dip #2 Fund

In: Business and Management

Submitted By kisor
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1. Would investors have benefitted from staying with the Australian share market through 2008 instead of being in the DIP #2 Fund?
The Global Financial Crisis (GFC) caused a worldwide drop in stock markets and Australia was no exception. Although not as badly affected as some other developed economies (Brown & Davis 2009, p. 1 of 7), the effect of the GFC was clearly felt in the Australian share market. The following graph of the Australian stock market (S&P/ASX 200) for 2008 illustrates the extent to which the market was affected by the GFC.

The stock index, which was at 6353.20 points at the beginning of the year, fell dramatically throughout most of the year, dropping as low as 3352.9 points on November before reaching 3722.3 points on the last day of the year (Yahoo finance 2014). This was a drop of 41.29% in the year 2008, during which time the DIP #2 fund fell 25%. When we compare these two figures, we can see that the DIP #2 fund performed much better compared to the Australian share market, the most likely reason for it being the DIP #2 fund's smart asset allocation and international diversification. While a drop of 25% is not a desirable outcome, it is definitely more preferable to the alternative of a 41.29% drop in value that would have occurred had the investors stayed with the Australian share market. So, not only would the investors have not benefitted, they would have been worse-off by a considerable margin had they stayed with the Australian share market through 2008 instead of being in the DIP #2 fund.

2. Should clients transfer their money to a Bond Fund at this point in time?
While the decision to transfer money to a Bond Fund is largely dependent on the willingness to take risk on the part of the clients, there is a good case to be made that the clients should stick with the DIP #2 fund at this point in time. The first argument in...

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