This article is from the Australian Property Journal archive
The Australian listed property trust market and Australian shares have delivered the best real returns for investors over the past two decades, according to the annual Australian Stock Exchange/Russell Long Term Investing Report.
According to the report, Australian LPTs outperformed all other asset classes at both the lowest and highest marginal tax rate, delivering average annual after tax returns of 12.6% and 10.4% respectively for the ten years to December 31, 2005.
The report found however, Australian shares delivered highest return over a longer period at an average annual after tax returns of 12.4% and 10.4% respectively for the twenty years to December 31, 2005.
While, Australian LPTs delivered average annual after tax returns of 11.8% and 9.7% respectively over two decades.
Australian residential property also fared comparatively well, particularly for investors who borrowed money to invest.
Over the ten years, residential property delivered average returns of 10.9% and 9% and over twenty years, the market delivered average returns of 10.9% to 8.9%.
The ASX/Russell Long Term Investing Report also found that on a before-tax basis, global listed property outperformed all other investments for the 10 years to December 31, 2005, delivering an average annual return of 14.6%.
As a mix of investments, the sample managed funds predictably produced returns in between the highest and lowest performing asset classes, and exhibited less volatility than shares or property.
ASX’s deputy chief executive and group executive of markets Colin Scully said the report was a valuable tool for all investors and other participants in the market.
“This report is important because it takes into account real costs as well as real returns across a range of differing asset classes, providing a unique, useful resource for all market participants. It reveals that domestic listed investments have outperformed various popular alternative investments, including residential investment property, over the previous 10 years
“The last decade has seen the All Ordinaries Index experience a very strong run, while the housing market experienced a well-documented upswing until 2004. Showcasing that volatility is prone to all markets, this report emphasises that diversification is needed to accommodate the inevitable rises and falls of any particular asset class,” Scully said.
Russell Investment Group’s Asia Pacific chief investment officer Peter Gunning said in addition to the obvious tax impact, the report served to remind investors of the cyclical nature of markets, and the dangers of market timing.
“While the report presents a useful view of long-term investment performance, it is unfortunately not indicative of how asset classes might perform in the next 10 or 20 years.
“For example, the best long-term performing asset class during the 1990s was international shares [highest performer for the 10 years to 1991, 1992, 1993, 1994 as well as 1998, 1999, 2000, 2001] followed by Australian bonds [for the 10 years to 1995, 1996, 1997].
“The big take-home message for investors however is the magic of superannuation. Under the Government’s proposed Budget measures, people will have more flexibility to keep adding to their super – effectively allowing high income earners to invest at 15% and reap the same improved returns of the lowest marginal tax payers,” Gunning added.
The report also strongly reinforces the case for investing in superannuation as one of the most tax effective long term investment options, particularly for higher income earners.
By Nelson Yap
