"Australian Shares" versus "Direct Property" - 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 diversified portfolios of Australian Shares and Direct Properties over the 34 years from 31 December 1971 (when suitable data for Direct Property portfolios first became available) to 31 December 2005. The article is an update of a similar article published just over three years ago. However this latest article examines a period which starts 6 months earlier and finishes 3.5 years later - and during both these periods, Share investment performance significantly exceeded Property performance.

First, let's examine what happened if $10,000 was invested in each of these two sectors at the start of the 34 year period, assuming that all investment income was reinvested back in each sector, as occurs with some managed investments:

 

The next table summarises the results:

 

$10,000 invested for 34 years

from 31/12/1971 to 31/12/2005:

  Accumulated to:

Australian Shares

 

$807,200

Direct

Property

 

$318,700

Difference

 

 

$488,500

Average annual

compound return

 

1st  17 yrs

next 17 yrs

  34 yrs

16.2%

11.4%

 13.8%

15.7%

5.9%

10.7%

0.5%

 5.5%

 3.1%

Standard deviation*

34 yrs

 23.8%

 8.3%

 15.5%

                                                   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 calendar year ending 31 March has   been:

Note that the annual returns for Australian Shares were negative 9 times in the 34 years but the returns for Direct Property were negative only 3 times in the 34 years.

 

To give an indication of the trends in investment returns (and inflation) over the period, the next chart plots the seven year moving average compound returns per annum. The seven year moving average compound rate of inflation per annum, based on changes in the CPI, is also shown.

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.