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HOME INVESTMENT SECTORS AUSTRALIAN SHARES versus BALANCED PORTFOLIO DIRECT PROPERTY versus AUSTRALIAN SHARES BALANCED PORTFOLIO versus SALARY INDEX AUSTRALIAN SHARES versus LISTED PROPERTY FIXED INTEREST versus CASH BOND RATES versus BILL RATES AUSTRALIAN SHARES versus INT SHARES AUS INTEREST versus INT INTEREST CASH versus INFLATION BALANCED versus CAPITAL STABLE AUS SHARES versus FIXED INTEREST AUS INVESTMENT PERFORMANCE 1960 - 2005 CONTACT |
"Australian Fixed Interest" versus "Cash" - 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 portfolio of "Australian Fixed Interest" securities with that of a "Cash" portfolio over the 25 years from 30 September 1979 (when suitable Cash sector data first became available) to 30 September 2004. The Australian Fixed Interest portfolio is primarily invested in government bonds and contains no international securities. The Cash sector comprises investments held in cash and other short-term interest- bearing securities. Both portfolios are 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 was reinvested back in each sector, as occurs with some managed investments:
The next table summarises the results:
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 year ending 30 September has been:
The Fixed Interest portfolio annual return was -5.2% for the year ending 30 September 1994. This was due to capital depreciation caused by significant increases in market interest rates over that year - the 10 year government bond rate increased from 7.0% pa (effective) at 30 September 1993 to 10.6% pa (effective) at 30 September 1994. In 14 of the 25 years the return for the Australian Fixed Interest portfolio exceeded that for the Cash portfolio.
To give an indication of the trends in investment returns (and inflation) over the period, the next chart plots the four year moving average compound returns per annum. The four year moving average compound rate of inflation per annum, based on changes in the CPI, is also shown.
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SuperEasy Pty Ltd is not licensed to provide advice on investments, or legalities of the types of investments that you can have. SuperEasy® strongly recommends that you seek professional advice before making any investment choice or decision! |
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