Vanguard have recently updated their 'Index Chart', which provides the details of the actual performance of various asset classes over time.
The average performance of each of the growth asset classes from July 1970 to now has been:
- Australian Shares - 13.3% a year. $10,000 invested in July 1970 is now worth $508,000.
- International Shares - 13.7% a year. $10,000 invested in July 1970 is now worth $551,000.
- Listed Property Trusts - 14.9% a year. They have only been around since the early 1980's.
Here is the point of all of this - all growth asset classes have produced remarkably similar returns. Listed Property Trusts appear to be a little superior, however they only started in the late 1970's/early 1980's and therefore missed the poor market returns of 1973/1974.
How does this information help us invest our money today?
First of all, the long term returns from these asset classes have been attractive - enough for any person who invests some of their money regularly to create significant wealth over a lifetime.
Secondly, because the returns from all three growth asset classes are remarkable similar, we don't have to worry about picking and choosing which one to invest in. We can invest in all three. This strategy will help us reduce the overall volatility of our portfolio, because as one asset class is performing poorly, there is a chance that this will be compensated by another providing a better level of performance.
Should we favour one asset class over any other? I tend to favour Australian shares, based on some research that suggests the benefits of franking credits are actually an 'unpriced' benefit. An example growth asset allocation might be:
- 40% Australian shares
- 30% International shares
- 30% Listed property