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Quantifying the value of discipline and a long-term vision: Vanguard releases the 2014 Index Chart

Vanguard | 21 August 2014


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Vanguard Australia has released its annual index chart tracking the performance of major asset classes over the past 30 years, once again demonstrating how investors can benefit from capturing market returns when they are prepared to invest in a disciplined way over the long-term.

The Vanguard 2014 Index Chart plots the performance of each asset class with an initial $10,000 investment in Australian Shares, International Shares, US Shares, Australian Bonds, Listed Property and Cash respectively.

The research highlights the power of low-cost index investing and reveals that a $10,000 investment in any one of the asset classes would have grown substantially in value over the 30-year period. The Australian shares investment would have reached a value of $278,615, a return of 11.7 per cent per annum.

A fundamental reason to invest in growth assets is to protect the real purchasing power of money and this analysis shows that all the major asset classes - including cash - managed to stay well ahead of the inflation rate as measured by the consumer price index.

$10,000 Investment in 1984

Investment value in 2014

30 year percentage returns

Australian Shares

$278,615

11.7%

International Shares

$152,663

9.5%

US Shares

$241,676

11.2%

Australian Bonds

$160,680

9.7%

Listed Property

$138,649

9.2%

Cash

$96,487

7.8%

CPI

$28,960

3.6%

The calculations do not account for transaction costs or taxes and assume the reinvestment of all income. The chart plots the rises and falls for each of the asset classes over the long-term, and reflects the balance as at 30 June 2014.

Robin Bowerman, Head of Market Strategy and Communications said "The Vanguard 2014 Index Chart is an excellent resource for investors and advisers alike as it is provides a clear picture of the long-term market growth across all major asset classes.

"At any point in time global political and market events can create a lot of market noise. This is where a clear long-term plan can help investors maintain a disciplined investment strategy, and avoid responding to short-term emotional influences.

"A deep body of academic research tells us that the most important decision an investor makes is the asset allocation decision, and it is in capturing market returns and implementing a portfolio's asset allocation that index and exchange traded funds are effective, low cost tools that investors and advisers can use to build portfolios."

While the index chart highlights the relative performances of the various asset classes one of Vanguard's key principles of investing is to take a well-diversified approach within a portfolio. The power of diversification is illustrated by the comparison chart showing the best and worst performing asset classes over the past 30 years.

The data shows that the highest and lowest yielding asset class randomly varies from year to year, underscoring the risks associated with attempts to time the market.

"Investors are often tempted to try and time the market, yet they can be caught out making decisions based on the past year's best and worst performers.

"For example, if investors moved out of international shares in 2012 following two years of low returns they would have missed out on the 33.1 per cent and 20.4 per cent return in 2013 and 2014.

"The challenge for investors is to look beyond the headline performance of shares and instead build a portfolio for all-seasons based on the right mix assets that matches your personal risk tolerance, harnesses the power of diversification and helps you remain disciplined, so you can reap the benefits in the long run," said Mr. Bowerman.

This is the fourteenth 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.

An interactive version of the index chart allows users to plot specific time periods and asset classes; it can be accessed online at www.vanguard.com.au/indexchart. Investors can order a hard copy of the chart or download a PDF online at www.vanguard.com.au/index2014.


Indices used to benchmark performance

Australian shares: S&P/ASX All Ordinaries Accumulation Index
International shares: MSCI World ex-Australia Net Total Return Index
US Shares: S&P500 Total Return Index
Australian bonds: Prior to December 1989 the index is the Commonwealth Bank All Series Greater Than 10 years Bond Accumulation Index. From September 1989 the index is the UBS Composite Bond Accumulation Index
Listed Property: Property: S&P/ASX 200 A-REIT Accumulation Index
Cash: Data prior to March1987 supplied by the Reserve Bank of Australia. From March 1987 the index is the UBS Bank Bill Accumulation Index.