Making money: Major asset classes provide solid returns

Residential property has stolen the limelight, with figures from CoreLogic showing property values have climbed 8.3% across our state capitals over the past year. Over the past 12 months the property markets in Sydney (up 11.1%) and Melbourne (11.5%) have done most of the heavy lifting. Perth and Darwin have been far less rewarding with values falling by 3.8% and 6.4% respectively.

However, other investments have outperformed bricks and mortar. To the end of May, Australian shares dished up total returns – capital growth plus dividends – of 13.89%.

A number of global sharemarkets have performed well and international shares have enjoyed gains of 17.84%.

Cash returns remain in the doldrums. At best, you may earn 3.0% on a 12-month term deposit right now, and after tax and inflation you will be lucky to keep your purchasing power, let alone go forward. Just how much of a role cash plays in your portfolio will depend on your age. As I am now in my 60s I should be taking less risk because if I lose lumps of capital it is hard for me to replace as my working years are winding down. But for younger investors it’s worth holding a decent chunk of your portfolio in growth assets.

Bear in mind, growth assets don’t always deliver the positive returns we’ve seen this financial year. They can, and do, fall into negative territory at times, which is why investors should take a long term outlook.

Paul Clitheroe is a chief commentator for Money Magazine.