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.
Frequently Asked Questions about this Article…
Residential property values have increased by 8.3% across state capitals over the past year, with Sydney and Melbourne leading the way with rises of 11.1% and 11.5% respectively. However, Perth and Darwin have seen declines of 3.8% and 6.4%.
Australian shares have outperformed residential property, offering total returns of 13.89% through capital growth and dividends. Additionally, international shares have seen gains of 17.84%.
Cash investments, such as 12-month term deposits, currently offer returns of around 3.0%. However, after accounting for tax and inflation, maintaining purchasing power can be challenging.
Younger investors are encouraged to hold growth assets because they have more time to recover from potential losses. Growth assets can offer higher returns over the long term, despite occasional negative performance.
A long-term outlook is crucial in investing because growth assets can fluctuate, sometimes entering negative territory. A long-term perspective helps investors ride out these fluctuations and potentially achieve better returns.
As investors age, they may want to take less risk because recovering from capital losses becomes harder. Younger investors, however, can afford to take more risks with growth assets due to their longer investment horizon.
The role of cash in an investment portfolio varies with age and risk tolerance. While cash offers stability, its returns are currently low, and it may not keep up with inflation, making it less attractive for long-term growth.
Paul Clitheroe is a chief commentator for Money Magazine, providing insights and commentary on investment strategies and market performance in the article.
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