Are we building portfolios for investors or for fund managers? Behavioural Finance Implications in Superannuation Investing. University of New South Wales John Livanas

Central Concept 100,000 Super Investors 4,000 Investment Switches 202 First Time Investment Switches 236 Survey Data Assess impact of first time choice Assess correlation of investment decisions with age, gender, market Establish Utility

Standardised Risk Return Concepts Consistent Method of assigning values to ‘Riskiness’ for quantitative analysis Portfolio NamesTypical Assets held Relative Risk ‘Value’ ‘High Growth’85-90% Equities, Property1 ‘Trustee Selection’75% - 85% Equities, Property0 ‘Diversified’65-70% Equities, Property ‘Balanced’ 45-55% Equities, Property, with the remainder in Bonds, Cash -2 ‘Capital Guarded’ <15% Equities, Property, with the remainder in Bonds, Cash -3 ‘Cash’ Largely Cash with possibly some short-dated Bonds -4

Risk Shifts and Market (after notional carry-costs) Period Ave. Risk Shift Ave. Money Weighted Risk Shift Pre 1/3/ $37,763 Post 1/3/ $64,693 Investors seem to take the lead from the market – believing that the market trend itself provides information

Correlation of First-Time Risk Shifts and Age Events seem to trigger ‘Rational’ Behaviour

Utility Curves for Return

Utility Curves for Risk

Utility Curves for Time Horizon

Quantifying the utilities E(R)pE(R)E(Z)pE(Z)E(T)pE(H) 3.9%-1.352no chance year % % chance year % % chance year % % chance year % % chance Consequently, for the state s=1, for all C’s =1, (5) solves as: ,008 =

Adding the Partial Utilities Partial Utilities of Risk %20%25%33% Partial Utilities of Return % % % % %

Risk Return isoutilities

Risk Return Isoutilities as a plane