MSCI Barra, probably best known for the global indices they have developed which are used as the standard benchmark for international investment returns (e.g. MSCI World ex Australia Index), have recently published a report looking at the last 35 years of investment return data to explain what has driven investment returns across the world over that period.
Their findings were that after inflation followed by dividend income were most important in explaining equity returns for the majority of world markets.
Over the period the UK & Australia had the strongest returns and the higher level of dividends. The report also provided some interest tables setting out the performance of various regions of the world across the 35 year period.
Without wanting to repeat all of this data here I encourage you to take a look at the 7 page report - What Drives Long Term Equity Returns?
For me the report provides a great reminder for long term investors to keep a close eye on the income (dividends) being generated by your investments. In Australia this is an even easier proposition thanks to the franking credit benefits passed on to shareholders.
Also keep in mind that the Australian market has lagged other world markets (take the 1990s as an example). For this reason it is still important to keep a good sized allocation of international investments to smooth out volatility and allow the impact of compounding returns provide an overall long term better return.