"Australian Shares" versus "Fixed Interest" - 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 Fixed Interest securities over the 38 years from 30 June 1965 (when suitable data first became available) to 30 June 2003. The Fixed Interest portfolio is primarily invested in government bonds and contains no international securities. It is revalued monthly based on market values.

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

The following chart plots the results for the first 19 years of the period. During all of this this period, except for the first 12 months, the accumulated result for Australian Shares exceeded that for Fixed Interest.

The following chart plots the results for the entire 38 year period:

The next table summarises the 38 year investment results:

$10,000 invested for 38 years from 30/06/1965 to 30/06/2003

Australian Shares

Fixed Interest

 Accumulated to

 $838,500

$267,700

 Average annual compound return

12.4%

 9.0%

Standard deviation

 21.1%

9.1%

                                                                  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 financial year ending 30 June has been:

Note that the annual returns for Australian Shares were negative 7 times in the 38 years and the
annual returns for the Fixed Interest portfolio were negative 5 times. The highest annual return for
Australian Shares was 80.8% (and 10 times the annual return exceeded 27%) but the highest annual
return for the Fixed Interest portfolio was 25.2%. 

To give some 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.