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Long Term Returns

I have attached the most recent Morningstar Long-term Asset Class Returns list up until 30 April 2019 and it – as always – makes for interesting reading.

We have highlighted this list previously in the Hudson Report and for good reason   

It underlines on of our central premises of the importance of “Time IN the market and not Timing OF the market” to secure long term success in investing. 

Some pertinent points from the table: 

  1. Australia Shares have underperformed International shares over the past ten years but not over the past 25 years.  As the world has globalised and certain sectors of modern society – technology and advanced healthcare – have become more and more important the dearth of Australian listed companies in this sector has impacted our longer term returns.  This is likely to continue as the local market is still very much concentrated in financial and resources sectors   
  • Cash returns over the three decades appear respectable in comparison to the more volatile share market returns – but the current zero or negative official rates in many countries of late and for the foreseeable will likely dial this return way down as recent returns illustrate 
  • A-REITS (or the old Listed Property Trusts as they used to be called) are a long  term sustainable performer. In there most simple guise of being landlords on commercial property they are arguably a lower risk inclusion in many portfolios. What sent many in a major tailspin during the GFC (as shown up in the historical drawdown section of the table)  was the financial engineering  that combined being landlords as well as major developers of property. That all came undone when the global recession hit, banks called in loan covenants, occupancy fell and many over indebted developers collapsed or were forced to raise capital at extremely low share price levels.  In this sector if you stick to the “simple model” the returns can be sustainable and attractive over the longer term   
  • Infrastructure has matured as a sector of the past decade as the third world modernises and the first world rebuilds old assets as huge amounts of capital (with large doses from private sources) is pumped into providing major capital intensive assets such as airports, railroads, ports and telecommunications.  This sector has performed very strongly and consistently for the past decade and should be an inclusion in all investors portfolios at all life stages
  • Hedge Funds are often not worth the fees they charge when compared to traditional asset classes and they are so difficult to decipher which will work out and which will still be here in 10 years time 
  • The historical drawdown figures are very sobering and reinforce the central premise above that you need to be invested for the long term.  There is a very strong argument that younger investors – particular when it comes to Super which is so restrictive in its access – should invest primarily in growth assets for the many decades they will be invested.  Yes there will be massive pull backs but also there will be recoveries and as these figures show.  Over the longer term even the slight difference in returns will make a massive difference in actual retirement dollar amounts.   

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