Vanguard today launched its 22nd annual Index Chart plotting the performance of major asset classes over the last 30 years, affirming that despite significant downturns, markets typically trend upwards over time.
Over the last 30 years, Australian shares on average have returned 9.2% per annum despite market events such as Russia’s invasion of Ukraine in 2022, the COVID-19 outbreak in 2019, and the Great Financial Crisis in 2007.
This financial year, Australian shares returned 14.8%, a marked improvement on the previous year when the same asset class returned -7.4%.
All other asset classes in FY23 also saw positive returns, a reversal since FY22 when all returns were in negative territory.
The best performing asset class this year was U.S. shares, returning 23.5% in the period between 1 July 2022 to 30 June 2023. Last year, U.S. shares returned -2.4%.
Australian bonds also made a notable recovery, recording 1.2% this year compared to -10.5% in FY22.
Conversely, cash was the best performing asset class last year with 0.1%. This year, cash was the second lowest returning asset class with 2.9%.
“Vanguard’s annual Index Chart puts into perspective the importance of approaching investing with a long-term mindset,” said Balaji Gopal, Head of Financial Adviser Services at Vanguard Australia.
“While investors shouldn’t rely on past performance, 30 years of market history has proved that the impact of geopolitical, economic and social events on performance is usually short-lived, and markets will typically recover and rise over time.
“Looking back over the last few decades, bear markets on average last only 0.9 years and are generally followed by a bull market, averaging 6.5 years. Investors who stay invested through downturns are therefore best poised to benefit when markets inevitably bounce back”.
“Although volatility smooths out in the long run, markets are unpredictable in the short run. The best performing asset class one year is not guaranteed to be the best the following year, and vice versa.
“Take bonds for example – last year, fixed income markets were caught in a perfect storm of surging inflation, rate hikes, and an unusual correlation with equities. This year however, return expectations for bonds have significantly improved, and yields and spreads have stabilised. Investors are again realising the diversification and income benefits bonds can provide as they begin to bounce back.
“This is why diversifying across asset classes – and making sure you have both growth (such as equities) and defensive components (such as bonds) in a portfolio – is the most effective way to mitigate market uncertainty”.
The power of indexing
Also illustrated in the chart is how an initial investment of $10,000 invested in broad Australian shares in 1993 would have grown to nearly $138,800 today, an average of 9.2% per cent return per annum. The same $10,000 in U.S. shares would have grown to $176,200, returning 10 per cent per annum.
|10,000 invested in 1993
||Accumulated investment value at 30 June 2023*
||% returns per annum
|Australian Listed Property
*with no acquisition costs or taxes, and all income reinvested
“Investing in the broad market via index funds or ETFs can produce powerful returns for investors over time if they give their investments the opportunity to grow,” said Mr Gopal.
“Additionally, by combining a mix of asset classes and adjusting that allocation as they age, investors can balance their risk and returns at every stage of their life to achieve their financial goals – from building their wealth all the way through to preserving their savings in retirement.
“It’s the same philosophy that underpins our Vanguard Super Lifecycle offer; let the market work for you by investing broadly, diversifying, and staying the course”.
Each year, Vanguard's index chart is downloaded and used by thousands of financial advisers and individual investors as an educational resource providing a clear picture of the long-term market growth across all major asset classes.
To view the Vanguard 2023 Index Chart online, please see here.