When it comes to investing there's a variety of options out there. But based on long-term historical results, a well-constructed diversified equities portfolio can produce a higher return than other popular asset classes.
Equities / Stocks
The average return from equities is the highest of the four asset classes. Over the past 20 years, investment in equities has become easier and cheaper for the average investor. Online brokerage can be as low as $10 per trade.
This substantially lowers the minimum amount that can be invested without incurring prohibitive costs.
While specific investments can substantially alter the outcome, a balanced portfolio with a long-term view can bring the risk of a negative outcome to a very low level.
Property
The outcome of any property investment can vary substantially depending on the specifics of the investment.
The Reserve Bank of Australia’s publication on the average Australian housing prices over the past 30 years quotes a return of 7.3% per annum.
But it’s important to remember that investing in properties can be a very concentrated risk and incurs additional costs such as stamp duty, insurance, and conveyancing.
Bonds
Bonds are an asset class that is poorly understood by the average investor and can be difficult to invest in with small amounts.
Although there are now Australian Government bonds that can be bought on the stock market, the average Government bond index will produce a lower long-term return.
Cash / Term Deposit
Cash is often seen as the safest investment option.
However, we often see that the interest earned does not even cover the purchasing power lost to inflation. In Australia, we are currently witnessing inflation running at 1.8%.
This means that while a three-year term deposit might run around 3.2%, real growth for the money put in the bank at this rate is just 1.4%.
We specialise in equity investing. Our strategies and experience can help you increase the returns on your investment, at a level of risk you’ll be comfortable with. Using our Value Strategy, we can help take the stress out of selecting and managing a share portfolio. We achieve this by focusing on fundamentals to identify companies with good earnings prospects for investment.
*Past performance is no guarantee to future performance
References:
1. Cash return was obtained from an advertisement by the Commonwealth Bank for a three-year term deposit. Accessed 11 February 2019.
2. Government bond return was based on the 10-year total return from the S&P/ASX Australian Government Bond 10+ year index over the period from Feb-2009 to Feb-2019.
3. The return for property was based on the RBA Bulletin “Long-run Trends in Housing Price Growth” Kohler et van der Merwe (2015) which stated that over the past 30 years Australian housing prices have increased on average by 7.25%.
4. The return for equities is based on the Fidelity share market report for the 30 year period to 31 December 2018
