ASX/Russell Long-Term Investing Report 2005

The ASX Investment Performance Report by Russell Investment Group found that, for the 10 years ended 31 December 2005, listed property outperformed all other investment sectors.

The results of the latest survey, revealed that listed property provided after-tax returns of between 12.6% and 10.4% per annum at the lowest and highest marginal tax rate; while Australian shares returned between 11.7% and 9.2% per annum over the same period. 

Listed property has provided a good safe haven for the past couple of years however fundamentally they have proved very attractive because of their stable income profile. Both these characteristics have contributed to the sectors strong performance in the recent survey.

The ASX Investment Performance Report measures the pre and post tax returns on shares, listed property, residential investment property, fixed interest and cash over 10 years from 1 January 1996 to 31 December 2005.

Key highlights – Investment returns for 10 years to December 2005:
For the top marginal tax
Australian Shares – 9.2% pa
Listed Property – 10.4% pa
Residential Investment property – 9% pa
Fixed interest 3.7% pa

For the lowest marginal tax rate:
Australian Shares – 11.7% pa
Listed Property – 12.6% pa
Residential Investment property – 10.9% pa
Fixed interest 5.8% pa

Over 20 years, depending on marginal tax brackets, Australian shares produced the best returns ranging between 12.4% and 10.4% per annum followed by listed property with returns ranging between 11.8% and 9.7% per annum and residential investment property with returns between 10.9% and 8.9% per annum.
Fixed interest enjoyed more modest performance, returning between 8.5% and 5.3% per annum depending on the marginal tax rate applied. Cash returned 5.7% on the lowest marginal tax rate and 3.5% on the highest marginal tax rate including the Medicare levy.

On the results Colin Scully, Deputy Chief Executive Officer said: “This report is a useful tool for all investors and other participants in the market “This Report is important because it takes into account real costs as well as real returns across a range of differing asset classes, providing a unique, useful resource for all market participants. It reveals that domestic listed investments have outperformed various popular alternative investments, including residential investment property, over the previous 10 years.”

“The last decade has seen the All Ordinaries Index experience a very strong run, while the housing market experienced a well-documented upswing until 2004. Showcasing that all markets are prone to volatility, this report emphasises that diversification is needed to accommodate the inevitable rises and falls of any particular asset class,” Mr Scully said.

Mr Peter Gunning, Chief Investment Officer, Asia Pacific, for Russell Investment Group, said in addition to the obvious tax impact, the Report served to remind investors of the cyclical nature of markets, and the dangers of market timing.
“While the Report presents a useful view of long-term investment performance, it is unfortunately not indicative of how asset classes might perform in the next 10 or 20 years,” Mr Gunning said. “For example, the best long-term performing asset class during the 1990s was international shares [highest performer for the 10 years to 1991, 1992, 1993, 1994 as well as 1998, 1999, 2000, 2001] followed by Australian bonds [for the 10 years to 1995, 1996, 1997].”

“The big take-home message for investors however is the magic of superannuation. Under the Government’s proposed Budget measures, people will have more flexibility to keep adding to their super – effectively allowing high income earners to invest at 15% and reap the same improved returns of the lowest marginal tax payers,” Mr Gunning added.