"Balanced" versus "Capital Stable" - an historical perspective and comparison

This article is one of a series of SuperMail articles by Colin Grenfell, who is a superannuation consultant and actuary and Associate Director of SuperEasy.

Each article compares the long term performance of two investment sectors, such as Australian Shares, International Shares, Listed Property or Fixed Interest, or financial indicators, such as the Consumer Price Index (CPI), Average Weekly Ordinary Time Earnings (AWOTE), 90 day Bank Bill Rates or 10 year Bond Rates.

This article compares the investment performance of a diversified "Balanced" portfolio with that of a more conservative "Capital Stable" portfolio, over the 38 years from 30 June 1965, when suitable data for the various investment sectors first became available, to 30 June 2003.

The Balanced portfolio comprises:

Growth Assets

Income Assets

36% Australian Shares

17% Fixed Interest

24% International Shares

7% International Bonds

7% Listed Property

5% Cash

2% Direct Property

2% Inflation Linked Bonds

Total 69%

Total 31%

The Capital Stable portfolio comprises:

Growth Assets

Income Assets

14% Australian Shares

34% Fixed Interest

8% International Shares

12% International Bonds

3% Listed Property

25% Cash

2% Direct Property

2% Inflation Linked Bonds

Total 27%

Total 73%

First let's examine what happened if $10,000 was invested at the start of the period, assuming that all investment income (ie dividends, net rent and interest) was reinvested back in each sector.

 

The following chart plots the results for the 38 year period.   For almost the whole period the accumulated result for the Balanced portfolio exceeded that for the Capital Stable portfolio.

 

The next table summarises the results.

$10,000 invested for 38 years

from 30/06/1965 to 30/06/2003

Balanced Portfolio

Capital Stable

Accumulated to

$451,100

$334,900

Average annual compound return

10.54%

9.68%

Average difference (per annum)

0.86%

0.86%

Standard deviation*

12.7%

7.3%

       Source: Austmod historical returns before tax and fees

*   The "standard deviation" indicates, for normally distributed investment returns, that approximately:

(a)   one-sixth of annual returns are less than (average - standard deviation)

(b)   two-thirds are in the range (average - standard deviation) to (average + standard deviation)

(c)   one-sixth of annual returns are more than (average + standard deviation).

 

The year by year investment performance for each 30 June financial year has been:      

The annual returns for the Balanced portfolio were negative 7 times in the 38 years, however the returns for the years ending 30 June 1969 and 30 June 1970 were -0.1% and -0.2% respectively. The annual returns for the Capital Stable portfolio were only negative twice in the 38 years.  The Capital Stable return for the year ending 30 June 1970 was zero (ie. 0.0%).

In 20 of the 38 years the return for the Balanced portfolio exceeded that for Capital Stable.

To give an indication of the trends in investment returns over the period, the next chart plots the ten year moving average compound returns per annum:

Disclaimer:   This article is intended to be a factual analysis of past investment returns.  It is not intended, nor is it to be regarded, as investment/securities advice.  It does not take into account whether any particular investment or type of investment is suitable for your individual circumstances.  It is strongly recommended that you seek professional advice before making any investment choice or decision.