FROM 1941 to the low in 1974, the average annual compound return on the All Ordinaries Index for 33 years was 2.9 per cent per annum. Take off inflation of 4 per cent and you were going backwards. And that doesn't include 1929 to 1941, which would have pulled it even lower.
In the next 33 years from the 1974 low (yes I've picked my dates) to the 2007 high, the All Ordinaries Index delivered an average annual compound return of 11.7 per cent. Add in 4.3 per cent of dividends and you come up to 16 per cent, per annum, for 33 years.
Strewth. No wonder everyone learned to set and forget, no wonder no one ever asked questions about fees, no wonder people didn't notice the trails on equity products even though the recipient was driving a BMW and the end customer got nothing for it, no wonder customers tolerated 2 per cent wrap account fees from big investment banks even if the money was invested in term deposits, no wonder the lowest risk asset allocation option on your managed fund still held 40-65 per cent in equities, no wonder the financial industry is so huge.
It has been an incredible three decades of asset speculation and price appreciation driven by people spending borrowed money, and the question now is whether it can continue. It's a multitrillion-dollar question for equities globally, for all asset classes, and it is a question for the school-fees-burdened parent and the retirement-focused investor.
We all need asset prices to go up because we have all been conditioned to expect it and our expectations, the root of all happiness, require it. We anticipate growth because for the past 33 years the property market and the equity market have always gone up. It's what we're used to. And now, for the first time I can remember (since 1982), we are seriously questioning it, whether this is our "Japan moment", our peak for the next 22 years, the pre-cursor to a period of massive volatility in which we have to duck and weave to make money because the average price goes down?
The truthful answer to that question is that while the financial industry has to gloss over it with predictable optimism, nobody actually knows. And the good news? It really doesn't matter. You don't need to know. This is like any other period of bearishness in equity market history, to survive it you just have to wake up to a few things that happen in a momentarily (let's hope) uncertain market. Things like this:
Risk aversion rises and with it volatility. The risk-reward ratio shifts and you have to ask whether your risk-tolerance quotient, and we are all different, has been violated. If so step out. Not losing money is good now. Priority one, survival. Priority 100, stock market glory.
Making money is going to take more effort. When it's more risky it requires more discipline and skill. Trading skills and in particular risk management (what's that?!) are an available commodity. You will have to learn some of them or you'll be wandering around on the battlefield wearing orange, and we'll get you.
There is more focus on stocks than "the market". It becomes a "traders' market". Stocks become "good" or "bad" and sentiment more polarised on a stock-by-stock basis. There is less tolerance of disappointment and more focus on stocks that do well. News that defines a stock as good or bad starts a trend that will last longer. Perfect for traders. Terrible for those who still think that investment is about having "faith" in anything other than today's price.
There is no long-term investment for the moment. You have to be more flexible. Having strong convictions about stocks or the market beyond tomorrow is misplaced arrogance. This is a time of flux. When the market is priced on risk and risk can change exponentially in a moment, Greece going bankrupt for instance, you can't realistically set investment horizons in advance. Without a reliable long-term "uptrend" you have to make money out of any opportunity over any time frame.
Change your expectations. If the root of all happiness is expectations met, then set realistic ones.
Not very cheerful I know, but those who are forced to lift their skills and education now will come out of this as much better investors and that is perhaps the best long-term investment you can make.
Frequently Asked Questions about this Article…
What did the All Ordinaries Index returns look like historically and why does that matter for investors?
The article notes two very different 33-year periods: from 1941 to the 1974 low the All Ordinaries averaged about 2.9% per annum (which was below inflation), while from the 1974 low to the 2007 high it returned about 11.7% per annum plus roughly 4.3% in dividends (about 16% p.a.). The takeaway for everyday investors is that long multi-decade returns can vary dramatically, so past strong performance doesn’t guarantee future results and expectations should be realistic.
Is a ‘Japan moment’ — a long period of stagnant markets — something everyday investors should expect?
The article says nobody knows for sure if we’re entering a prolonged peak or stagnation like Japan experienced. More importantly, that uncertainty doesn’t have to paralyze you: instead focus on survival, risk management and adapting your approach rather than trying to predict which decades will be strong or weak.
How should I change my investment expectations in a more uncertain or volatile market?
When markets price in higher risk and volatility, the article recommends resetting expectations to be more realistic. Prioritise capital preservation, accept that returns will be harder to earn, and be prepared to make shorter-term, flexible decisions rather than relying on a reliable long-term uptrend.
What does increased market volatility mean for my portfolio and risk tolerance?
The article explains that rising risk aversion increases volatility and can alter the risk-reward balance. If your personal risk-tolerance is exceeded, it’s sensible to step back and protect capital. In volatile markets, surviving downturns is the top priority; chasing glory should take a back seat.
How does a ‘traders’ market’ differ from traditional long-term investing?
In a traders’ market, stocks are judged more on short-term news and can quickly be labeled ‘good’ or ‘bad’, creating stronger stock-by-stock polarization. That environment favours trading skills and quick decision-making, and it’s less compatible with the faith-based, buy-and-hold mindset that works during long, reliable uptrends.
Do investment fees matter more now that markets might be less forgiving?
The article highlights that during long bull runs many investors tolerated high fees—examples include 2% wrap account charges and trailing commissions—even when underlying investments were low-risk. In an environment where returns are tougher to earn, fees become a more important drag on performance and deserve closer attention.
What skills should everyday investors develop if markets become more risky and unpredictable?
The piece suggests sharpening trading skills and, especially, risk management. Learning to manage position size, stop losses, and portfolio diversification — plus improving financial education — will help investors navigate volatile markets and come out stronger in the long run.
Should I prioritise surviving the market downturn over trying to maximise gains?
Yes. The article is clear that in uncertain markets survival is priority one. Protecting capital and avoiding large losses should come before chasing outsized returns; disciplined risk management and realistic expectations are key to long-term investing success.
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