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Long term investors rewarded

Vanguard | 14 August 2013


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Vanguard Australia has released its 2013 Index Chart tracking the 30 year performance of major asset class indices and providing a compelling argument for the benefits of long term index investing.

To highlight performance of each index the chart tracks an initial $10,000 investment in Australian shares, International Shares, US Shares, Australian Bonds, Listed Property and cash respectively.

Assuming no transaction costs or taxes and the reinvestment of all income, the chart shows that each of the model investments achieves significant growth over the long term.

$10,000 Investment in 1983

Investment value in 2013

Australian Shares

$268,733

International Shares

$129,688

US Shares

$190,702

Australian Bonds

$183,877

Listed Property

$168,900

Cash

$105,786


The research reveals that a $10,000 investment in any one of the asset classes would have grown in value to over $100,000 over the 30 year period, with an investment in Australian shares reaching a value of $268,733. The percentage return per annum ranges from 8.2 percent to 11.6 per cent across the asset classes, all well above CPI at 3.7 per cent.

Robin Bowerman, Head of Market Strategy and Communications said "The 2013 Vanguard Index Chart is an excellent educational resource as it illustrates the growth of markets over the long term, despite short term fluctuations that may seem alarming when you are living through them.

"In the quest for better returns there is always the temptation to try and time markets in response to constant economic, social and political change. What this chart clearly demonstrates is that those who stay the course over the long term are rewarded for their patience and discipline.

"The significant growth achieved by each of the asset classes presented in the chart also speaks to the benefits of using index and exchange traded funds that track a broad index to capture market returns.

"There is a deep body of academic research that highlights that the single most important decision any investor makes is the asset allocation decision and it is in capturing market returns and balancing your portfolio's asset allocation that index funds are effective and low cost. Indexing can help investors avoid many of the risks of market timing and manager and stock selection, while keeping costs and tax to a minimum" said Mr Bowerman.

New Vanguard analysis of Morningstar data also points to the difficulty of picking an active fund that will actually beat the index, and survive over the long term. In the 10 years to 30 June 2013, 72 per cent of Australian equity funds either underperformed the index or did not survive. Over the same time period the number of Australian fixed interest funds which underperformed or closed was 77 per cent.

The 2013 Vanguard Index Chart also includes a comparison of the best and worst performing asset classes over the past 30 years. This analysis presents no discernible pattern or trend, rather it shows how randomly the leadership, and wooden spoon, shifts among asset classes each year. This supports the case for diversification at an asset class level, as well as within an asset class, as a risk management strategy.

"Markets behave differently from each other therefore having an exposure to a range of asset classes can help ensure an investor benefits from asset classes delivering stronger performance while mitigating any impact from weaker assets", Mr Bowerman said.

"Building a long term investment strategy that aligns an investor's risk profile with their investments is critical to positioning investors for success.

"Again, the lesson here is that discipline and perspective are the qualities that can help investors remain committed to their strategy, and ultimately reap the rewards."

This is the thirteenth year Vanguard has produced and distributed the Index Chart, with each edition tracking the performance of major asset class indices across the 30 preceding years.

The 2013 Index Chart will be distributed to more than 80,000 investors and advisers.

An interactive chart can be viewed at www.vanguard.com.au/indexchart.