Evidence suggests that very few people profit from chasing the "best investment".

Negative returns are expected in almost all asset classes from time to time. This is a normal part of investing. Likewise, peaks in performance are also expected. Both of these are unsustainable and are soon absorbed by long-term trends.

You can improve your super by learning more about investing for the long term.

• Stay calm - peaks and troughs are normal
• Spread the risk
• Time in, not timing the market
• Start early and win

Stay calm - peaks and troughs are normal

The current turbulent conditions of the share market may seem worrying, but when all is said and done, these conditions are completely normal. Markets move in cycles; they rise, peak, fall and then hit bottom. When one cycle is finished, the next begins.

Markets have produced strong returns over recent years, making it difficult for some investors to take a historical view. This can lead to panic when the inevitable happens, and the market takes a plunge. History has shown that negative periods are often followed by strong market recoveries.

Super is a long-term investment. Fluctuations in investments kept over the longer term generally even out. If you are comfortable with your current level of risk exposure there is no need to change your investment strategy. By sticking with your long-term investment strategy you will ride the market back up again. The market always recovers - it is just a question of when.

The chart shows the difference in annual returns between the Australian Stock Market (measured by the ASX300) and cash investments based on the UBSA Bank Bill Index. As you can see, some investment types are expected to fluctuate more than others. Despite increased volatility, the long-term average returns from the Australian Stock Market far exceed the cash investment.

Spread the risk

Different markets perform differently at different times. In simple terms, spreading your risk is 'not putting all your eggs in one basket'. This is called diversification. This means that you won't have all your money on the "best performer" and will achieve some protection when they have poor returns.

Strategies for achieving diversification are:

• Investing across a range of asset classes;
• Using a number of investment managers with different investment styles;
• Holding different investments or shares within each asset class.

RBF's MIC options are specially designed to provide various degrees of diversification. Members choosing single investment management options will achieve a degree of diversification through asset classes and/or share or stock holdings. Members who choose to hold investments in single asset class options such as RBF Australian Shares will still achieve some diversification through multiple investment managers within the option, each with different methods of selecting their individual range of shareholdings.

Across asset classes

Assets are usually grouped into similar types of investments, eg shares, bonds or property investments etc. These groups are called asset classes.

RBF's five asset classes are:

• Australian Shares
• International Shares
• Fixed Interest
• Property & Alternative Investments
• Cash

Negative returns are expected in almost every asset class over time. The values of different asset classes move up and down at different times and at different rates. By spreading investments across different asset classes you reduce the effect of a loss in one class, as it can be absorbed through gains in another class.

RBF has 14 Member Investment Choice (MIC) options. Five of these are single asset class options for those members who wish to choose their own blend of asset classes.

Across investment managers

Diversification is achieved within each asset class by appointing multiple managers with different investment styles. RBF uses more than 25 different investment managers across 10 of the 14 Member Investment Choice (MIC) options. Four of the MIC options are single manager options and do not offer diversification in this way.

Each investment manager has their own investment style which, like asset classes, tends to do well at different times under different market conditions. By combining a range of different investment managers and styles you can smooth the effect of fluctuations between different individual investments. RBF employs investment managers with a wide range of expertise. In choosing its specialist investment managers, the RBF Board undertakes a thorough evaluation process. This process considers attributes such as:

• investment philosophy;
• style and approach;
• size of organisation and funds under management;
• past performance;
• expected ability to outperform in the future, in both rising and declining markets;
• staff and research capabilities; and
• complementary styles between managers (e.g. a 'top-down manager' versus a 'bottom-up' manager, or a 'value' manager versus a 'growth' manager).

In line with RBF's Investment Policy Statement, these external investment managers are regularly measured for their performance and replaced if they fail to meet the agreed standards.

Across investments or share holdings within asset classes

Some diversification is also achieved by investing across different companies, regions, industries and industry sectors even within an asset class. For example, economic or political conditions can negatively affect some companies within an asset class, while having a positive affect on others.

All 14 of RBF's Member Investment Choice options provide varying degrees of diversification in that way.

RBF engages investment managers to invest in many different shares, in various industries and their sectors and in different regions of Australia and the rest of the world.

Time in, not timing the market

Patience is a virtue. This is also the case when it comes to investing. All asset classes experience market downturns and it is impossible to accurately predict movements in the market. If investing were that simple, we'd all be rich.

As many investment managers like to say: it is not timing the market, but time in the market that counts. That means sticking to quality investments for a longer period of time is more likely to provide better returns than trying to pick the right investment at the right time.

Don't let short-term price fluctuations scare you away from long-term value.

Investors who lose patience with sound investments and leave the market, risk missing out on potential gains in its recovery.

Start early and win

The sooner you start investing the better. You don't need large amounts of money to begin investing. You can invest smaller amounts of money at regular intervals. Many experts will argue regular contributions are the best way to invest. By doing this you make the most out of both good and bad economic conditions. This method is called dollar cost averaging.

Here's how dollar cost averaging works:

It is easier to understand dollar cost averaging if we use an example of directly purchasing shares.

It is impossible to perfectly time your entry and exit of markets. Dollar cost averaging solves this problem by eliminating the need to predict an entry or exit point. If you invest a fixed amount of money regularly into the same investment your money will buy more shares as the price falls, and fewer shares as the price increases. You benefit from acquiring your largest number of shares at the bottom of the market and make your profit when the market rises.

Assume you invest $30 per month on a particular investment over a 1 year period. The chart below shows how many shares you purchase each month as the price changes. Notice how your $30 investment buys more shares when the share price falls.

In this example your 12 monthly instalments of $30 per month allow you to purchase 63 shares using $360 in total. These shares are valued at $504 at the end of the year, which means your $360 investment earned a profit of $144 over the 12 month period.

A one year period has been used in the above example, however super is a long term investment and benefits will be compounded the longer the investment is held. Please note this example is not based on real share prices of any particular investment and does not take into consideration ongoing fees and charges.

Compare dollar cost averaging with lump sum investing:M

Staying invested over the long-term offers some protection from market volatility because your returns are averaged out over a number of years. You also benefit from compound interest. Compound interest is when you earn investment returns on both the principal value of your account as well as on interest previously earned.

You can use dollar cost averaging by making regular contributions to your super. The simplest way to make contributions is through automatic payroll deductions using Salary Sacrifice or personal contributions.

If you are saving for a retirement that is 20 to 30 years away, imagine the benefits you could gain from dollar cost averaging and compound interest.