With some healthy investment performance figures recently - the ASX/S&P300 index is up 10.5 per cent so far this year alone - and the Australian Bureau of Statistics Labour Force Report this week showing 71,500 more people employed in February it is not surprising that general sentiment has swung strongly positive.

The January research report on investor sentiment by Investment Trends was probably the first to flag a marked turnaround as it showed investor concern levels dropping to a 40-month low. You can reasonably expect that sentiment has improved further through February and into March.

When you drill down into the Investment Trends survey of 820 investors - taking note that this is a survey deliberately of investors rather than a broader "consumer" survey -what becomes clear is that while people are much more positive about the Australian sharemarket they are also strongly influenced by lower interest rates and the prospect they will go lower and as a result investor intentions are shifting away from bank term deposits towards shares.

There is seemingly a rational logic at work here - as yields on things like term deposits fall investors are forced to look elsewhere for comparable or higher returns.

The media can be an effective - if somewhat short-sighted - messenger at times like these. Headlines declaring that equities are now "safe" to buy back into certainly strikes an emotional chord but a rational investor would do well to question what it is that makes something "safer" just because its price has risen.

That should not be misconstrued as a commentary on whether Australian shares are under or overvalued at this point in time, rather it is a simple reminder that just because prices have been rising in recent times and confidence has been rebuilt in the sharemarket there are no guarantees of future returns.

The investors in the Investment Trends survey overwhelmingly think the broader Australian sharemarket will continue to go up in the short-term - 84 per cent expect shares to go up in the year ahead and that figures climbs to 92 per cent when people are asked whether shares will rise in the next five years.

Given the timeframes generally advised for sharemarket investments and the market's long-term growth figures perhaps that level of expectation for some level of growth is reasonable.

But if you go back to September 2011 the monthly survey results show us that the high level of expectations of positive returns has been amazingly constant hovering between 90 and 92 per cent.

More telling is that not only were those investors highly positive but they expected returns to range between 18 per cent and 24 per cent.

Now if expectations could be translated into reality that would be a certain path to wealth creation but the gap between expectation and reality is often very wide - the ASX/S&P300 index delivered a positive but modest 2.6 per cent return over the five years to the end of February.

The reality is no-one knows what will happen in the next five years. Perhaps we are due another strong sharemarket run, perhaps not.

We do know from behavioral finance studies that as human beings we have a tendency to use short-term historical numbers as "anchors" for future long-term predictions.

When levels of confidence and certainty are rising by all means enjoy the positive atmosphere but remember some of the key lessons from the seminal investment book The Random Walk Down Wall Street by Dr Burton Malkiel.

Simply put they are: do not try to time markets, build a diversified portfolio and rebalance it regularly.

By Robin Bowerman
Smart Investing Principal & Head of Retail,
Vanguard Investments Australia
15th  March 2013