Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Forget market implosions and draw solace from long-term returns
Retirees having sleepless nights worrying that they will outlive their savings can take comfort from a report showing that investment markets have performed strongly over the past 30 years.
For those who experienced the GFC and COVID market implosions, that finding might surprise. But asset manager Vanguard’s 2024 Index Chart, now in its 23rd year, shows how investment markets have kept rising strongly over time.
Vanguard Australia principal, head of personal investor, Renae Smith, says this positive outcome was despite several significant sharemarket falls, economic downturns, changes in governments and world leaders, wars, natural disasters and even the ongoing consequences of the COVID-19 pandemic.
She says: “What the index chart powerfully highlights are the benefits of having a disciplined approach to investing, the importance of diversification and the strong growth achieved across the different asset classes over the past 30 years.”
The investment standout over these 30 years was US equities returning an average 11.1 per cent annually between July 1, 1994, and June 30, 2024, outpacing the 9.1 per cent average annual return from Australian shares and the 8.2 per cent average annual return from international shares.
Over the same period, Australian listed property returned an average 7.8 per cent, outpacing the 5.6 per cent average annual return from Australian bonds and the 4.2 per cent average annual return from cash.
Smith says: “The index chart once again highlights the upward momentum of different asset classes over time, and the value of having a long-term investing mindset, whether that’s through direct investing inside or outside of superannuation.
“There have been various times over the past 30 years when markets have been highly volatile. In early 2020, for example, global sharemarkets fell heavily amid the onset of COVID-19.”
But although these market upheavals weigh heavily on investor minds, Smith reminds them that these events are the exception, not the norm.
“As the index chart shows, most events are typically short-lived. Bear markets on average last less than a year and are generally followed by a bull market, averaging 6.5 years.
“Although past performance is not an indicator of future performance, history shows us that investors who have avoided the temptation to sell or switch their investments, especially during periods of extreme volatility, have been well rewarded over the long term. It definitely pays to stay the course.”
Atchison Consultants principal Kev Toohey (pictured) concurs, arguing that over a 25 to 30-year timespan retirees should be more concerned about inflation eroding the purchasing power of their assets as their primary risk and less concerned about the month-to-month, year-to-year volatility of markets.
“Coupled with the permanent loss of capital – selling in a market downturn, crystalising a paper loss into an actual loss being an obvious example – they are the two main enemies of achieving long-term objectives.”
He adds that investors typically expect a higher return premium from listed shares, sometimes referred to the equity risk premium, relative to defensive assets such as government bonds, given the inherent risk of loss and greater variance in valuations involved with these investments.
“Over shorter time periods such as one day, one week, even one year, the given variance in valuations is noticeably higher for shares when compared with defensive assets. But when measured over longer time periods, such as rolling 10-year periods, the peaks and troughs of markets begin to offset each other, and generally the measured variance of returns over 10 years is materially lower.”
Vanguard’s Smith cautions retirees not to chase last year’s winners. In the 2023-24 financial year, Australian listed property was the best-performing asset class, returning 24.6 per cent, with US shares returning 24.1 per cent and international shares 19.9 per cent.
Australian shares returned a lower 12.5 per cent, while the impact of higher interest rates lifted the investment return on cash to 4.4 per cent, above the 3.7 per cent return on Australian bonds.
By contrast, in the 2022-23 financial year, US shares were the standout at 23.5 per cent while Australian listed property returned 8.1 per cent and Australian bonds 1.2 per cent.
“The returns from asset classes vary from year to year, so chasing last year’s returns is a bit of a losing strategy. Being diversified across asset classes, with exposure to growth assets such as equities and defensive assets such as bonds and cash, will invariably deliver smoother returns over the long term,” she says.
