For the past eighteen years, Vanguard Australia have produced an index chart tracking the 30-year performance of major asset class indices. The 2018 chart demonstrates that despite stock market crashes, terrorist attacks, natural disasters, a succession of governments and the Global Financial Crisis (GFC), Australian shares have performed well.
What were the results?
The Vanguard data assumes no transaction costs or taxes and the reinvestment of all income, with a $10,000 investment in 1988 potentially achieving the following growth:
|$10,000 Investment in 1988||Investment value in 2018||Per annum returns|
Vanguard’s chart which we can view here, shows that Australian shares have performed well as an asset class, with a return of 9.1% per annum, second only to the return of US shares of 10.6% p.a. Interestingly, the returns indicate that international shares have performed poorly, under performing listed property and Australian bonds, and only beating the cash return by 1.3%.
Looking at the full track record for these asset classes over the last 30 years, we can see just how volatile the markets can be, and how quickly fortunes can turn around. As expected of low risk asset classes, bonds, cash and the consumer price index (CPI) have made steady, consistent gains.
Vanguard’s Index Chart tracks the performance of major asset class indices across the 30 preceding years. You can access the 30-year chart with accompanying table and commentary here.
It has not been smooth sailing for international shares, crashing from a high just prior to the GFC that saw greater returns than any other asset, to lower than even the performance of cash. While they have recovered significantly since that crash, they still aren’t performing as well compared to the rest of the market. US shares and listed property also show the huge impact of the GFC, as well as the burst of the dot com bubble in the US. Both asset classes have recovered well though, making strong gains in the last decade.
Australian shares too have had a rocky time, chiefly with the GFC, but overall the past 30 years has been smoother than other assets. Particularly interesting is the rapid recovery our local shares had from the depths of the GFC, this may have been due to the stimulus packages that were introduced. While this didn’t fully counteract the losses, it did mean that Australian shares didn’t experience as long and sustained a downturn as US and International shares did.
The importance of diversification
As Vanguard highlights in their report, the data shows the importance of diversifying investments to help reduce volatility and receive more consistent returns. All of the more volatile asset classes surveyed had periods where they outperformed each other, and periods where they underperformed. Recessions, disasters and wars can strike without warning, sending particular markets plummeting. They will likely recover over time, but if your portfolio is too exposed, this can lead to a significant setback with regards to your objectives.
It’s tempting to imagine that we know enough and are engaged enough to be able to react to sudden downturns, and time the market perfectly to maximise gains and minimise losses. However, Vanguard’s research shows that strategic asset allocation is nine times more important for long term growth.
To read more about diversification and investing, visit Canstar’s dedicated Investor Hub.