Heres why picking investment winners is tricky← Homepage
TRYING to pick the next big investment winner can feel like having a go at a lucky dip — and with good reason.
A new analysis of nine major asset classes over the last 10 years shows that all but one cash has claimed the title of the years best investment at least once.
Vanguard Australias 2016 Index Chart shows that since 2007 Aussie shares have topped the table only once, a 30 per cent jump in 2007 just before the Global Financial Crisis, while US shares and international bonds have been winners twice. Last financial year, Australian property trusts did the best with a 24.6 per cent gain.
Vanguard Australia head of market strategy Robin Bowerman says the numbers highlight the value of diversification.
It shows how hard it is to time markets to pick next years winning asset class, he says.
Its difficult for people to accept that there isnt some secret formula that lets you invest in things before they go up.
If you accept the fact that you cant predict markets, thats why you diversify, placing a lot of bets across the whole market.
The Vanguard data shows that cash has been the worst investment class for three of the past 10 years, and in the last three years its annual investment returns have failed to eclipse 2.8 per cent.
However, cash remains popular among Aussie investors because its the only asset that comes with the safety of a Federal Government guarantee on bank deposits.
We also have had pretty volatile markets, which feeds into people saying Im not sure, so I will keep my money parked in cash, Bowerman says.
Despite low official interest rates in Australia and overseas over the past decade, buying bonds has been the best move for three of 10 years. In 2008 and 2009 it was international bonds and in 2012 Australian bonds chimed in with a 12.4 per cent gain.
In Australia we dont appreciate the value of fixed income, Bowerman says. He says the rise of exchange traded funds in recent years gives investors better access to bonds both government and higher-yielding corporate bonds.
Financial strategist Theo Marinis says the key message for any investor is diversify, diversify, diversify.
Nobodys got a crystal ball and you cant predict what asset class is going to perform best next, he says.
Marinis says quite often, one years best investment performer drops off the next year to rebalance the scales, highlighting the benefit of diversification.
You wont shoot the lights out but you wont blow up your portfolio either, he says.
Vanguards analysis tracks asset class performance over 30 years. It found that a $10,000 investment in 1986 in Australian shares has grown to $154,405, while the same amount in cash would be worth $75,023 inflated by 15 per cent-plus interest rates paid on deposits in the late 1980s.
Diversifying across multiple asset classes allows investors to take advantage of growth on several fronts, while providing some safe harbours against unexpected risks and market corrections, Bowerman says.