The recent poor returns of Australian and International markets are a stark reminder that the stock markets can be just as cruel as they can be kind.

While we have addressed the issue of investing for the long term before we thought it timely to look at some of the statistics again.
The table below shows you the long term returns for a balanced (70/30) Portfolio from January 1989.

 one month  three months  six months  one year
  -5.83%  -2.38%  -11.88%  -11.70%
 3 years  5 years  10 years  inception

The last 12 months have produced some very poor results, however, as soon as you start moving beyond one year, the numbers begin to turn positive with the return since inception over 19.5 years being a very respectable 9.68 per cent compound. As we discussed in last quarter's newsletter, in most circumstances the best decision to make is to not make one at all or rather, continue the long term strategy that has been established.

Looking specifically at Australian shares, consider some of these numbers: 

  • In the five years to 30 June 2008 the ASX200 is up about 16 per cent in total; 
  • According to Russell Investment Management, in the 20 years to December 2007, Australian shares delivered a gross return of 12.5 per cent a year. 
  • In the 109 years to March 2008, ASX figures show the Australian Share Accumulation Index (with dividends reinvested) averaged an annual return of 12.4 per cent
Invariably during years of negative returns people feel compelled to move investments to cash ‘until the worst of it is over’ at which point they will go back in. However, recent research shows how devastating it can be to miss a significant market rebound. It demonstrates that an investor missing the best five days in the market over 10 years could show half the return of someone invested for the full period. Missing the best 30 days out of a decade can shift the overall returns from positive to negative. Ultimately you must do what you feel is right, however, the old adage of ‘Time in the market rather than timing the market’ is something we should all keep in mind.
Daniel Minihan

Director - Wealth Management
dminihan@moorestephens.com.au