A powerful combination

The historic out-performance of the share market, the low-taxing superannuation environment plus the benefits of the dividend imputation system is a truly powerful combination.

The advantage of this combination is illustrated once again in the latest Russell/ASX Long-term Investing Report - which examines before-tax and after-tax returns for the different market sectors over the past 10 and 20 years to December 2007.

As you would probably expect, shares produced superior returns to the other main asset sectors in before-tax and after-tax terms. But concentrate on the after-tax returns which are, of course, much more significant to you.

The latest edition of the annual Russell/ASX report is of particular interest because it shows the full impact of the first two decades of the dividend imputation system.

It took a long time for many investors to recognise the true value of dividend imputation which the Hawke-Keating Government introduced in 1987. Suddenly, dividends were no longer double taxed - once in the hands of the company, then in the hands of the investor.

In pre-tax (after-cost) terms over 10 years, the top-performing sectors were Australian shares 13.3% a year, Australian listed property 12.7% and residential investment property 11.6%. And in pre-tax terms over 20 years, the top-performing sectors were also Australian shares 12.5%, Australian listed property 12.4% and residential investment property 11.3%.

And now for the parts of the report that I find particularly fascinating - the after-tax comparisons.

At the lowest marginal tax rate, the annual after-tax returns for the 10-year period were Australian shares, 13.2%, Australian listed property 11.3%, residential property 10.6%, fixed interest 4.5% and cash 3.7%. And at the highest marginal rate, the annual after-tax returns for the 10-year period were Australian shares 10.6%, Australian listed property 9%, residential investment property 8.8%, fixed interest 2.9% and cash 2.4% - below the rate of inflation.

And add the advantage of the superannuation tax environment. Over the past 10 years, Australian shares returned 13.3% a year, Australian listed property 11.4%, residential investment property 11.4%, fixed interest 4.8% and cash 3.9%.

See the full report: http://www.asx.com.au/ It is a must read.