Superannuation: Switching and Roulette Wheels

Abstract

The introduction of choice has resulted in Australia’s superannuation system providing unprecedented flexibility (through increased investment options and the timing choices) for members to optimise their expected benefits. This paper examines the impact of switching between investment options using a normalised ranked return or “roulette wheel” approach developed by Bauer and Dahlquist (2001) for the Australian setting. The paper tests various switching strategies for both single-sector and blended options, for the period 1985–2005, finding that members require forecast accuracy of around 70% to be successful at market timing. Finally, the paper considers the impact of switching strategies on accumulated balances.Superannuation, investment options