This article is from the Australian Property Journal archive
LISTED property no longer reign supreme, the 2008 Russell/ASX Long-Term Investing Report found Australian shares provide the best 'real' return, after factoring the impact of inflation, over the past two decades.
The report, commissioned by the Australian Securities Exchange, says Australian shares offer the best long-term investment and has encouraged investors to look beyond current market volatility and avoid the ‘buy high, sell low’ trap.
According to the report, over the past 10 years to December 31 2007 Australian shares have outperformed all other investment sectors.
At the lowest marginal tax rate, the after-tax returns of Australian shares was 13.2% pa, followed by Australian listed property was 11.3% pa, residential investment property with 10.6% pa, fixed interest (4.5% pa) and cash (3.7% pa) – above the average rate of inflation 2.9% pa.
Global property and global shares are not included on an after tax basis due to the differential tax treatment for Australian investors in different countries.
At the top marginal tax rate, the after-tax returns from Australian shares were 10.6% pa, Australian listed property (9.0% pa) and residential investment property (8.8% pa).
Meanwhile, fixed interest assets generated returns equal to the average rate of inflation (2.9% pa), the cash return (2.4% pa) has fallen below the average rate of inflation.
At the superannuation tax rate, returns were higher than at the lowest marginal tax rate and well exceeded those at the top marginal rate. Australian shares were again the top performing sector, producing returns of 13.3% pa, followed by Australian listed property (11.4% pa) and residential listed property (10.6% pa).
Fixed interest and cash produced returns above the average rate of inflation at 4.8% pa and 3.9% pa respectively.
ASX’s general manager of marketing Peter van Steensel said the report reinforces the benefits that ASX-listed investments can provide to investors’ long-term investment strategies.
“Given the volatility the market has experienced this year, it is useful to pause and reflect on those longer-term benefits and the performance advantages of listed investments over other investment opportunities,” he added.
The Australian shares sector also outperformed all other investment sectors after allowing for taxation and expenses in the past 20 years.
At the lower marginal tax rate, the after tax returns of Australian shares (12.7% pa), Australian listed property (11.0% pa), residential investment property (10.2% pa), fixed interest (7.9% pa) and cash (5.1% pa) were well above the average rate of inflation (3.2% pa).
At the top marginal tax rate, the aftertax returns from Australian shares (10.3% pa), residential investment property (8.5% pa) and Australian listed property 9.0% pa) have exceeded inflation. returns from fixed interest assets (5.0% pa) were more moderate, and cash returns (3.2% pa) matched the average rate of inflation.
Russell Investment Group’s director of investment strategy Andrew Lill said the report offers valuable insights about long-term investing and risk.
“Investors should understand that it is not about trying to time the market, but about time in the market, because it is very difficult even for professionals to predict the highs and lows of investment cycles.
“The good news for long-term investors is that, on average, the asset classes that experience greater volatility over the short-term also provide higher returns in the long run,” he added.
Lill said it is important for investors to understand their appetite for risk and how this potentially affects their investment returns in the long-term.
“Otherwise, for equities especially, investors will find themselves in a vicious cycle of buying high and selling low, which is the exact opposite of what an ‘intelligent investor’ wants,” he continued.
The report also investigates the impact of borrowing on investment performance, factoring in a 50% gearing ratio for the most commonly geared assets – Australian shares and residential investment property.
Under this scenario, Australian shares again outperformed residential investment property at both the lowest and highest marginal tax rates – with Aussie shares returning 16.2% after tax versus 13.4% for residential property (lowest marginal rate) and 13.9% versus 12.0% (highest marginal tax rate). This was also the case at the superannuation tax rate.
Lill said in times of market uncertainty, it is imperative for investors to have a diversified strategy to achieve maximum returns for the minimum amount of risk.
“The latest results also reinforce that super remains one of the most tax effective environments in which to invest, and that super should be considered as an important part of an individual investor’s overall investment strategy, alongside their owner-occupied property investment,” Lill concluded.
Australian Property Journal
