Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 8

Lessons from 32 years of investment returns

‘Past performance is no guarantee of future performance.’ How many times have we heard that? The Australian Securities & Commission (ASIC) insists that fund managers and financial planners include it in practically every piece of communication they produce.

The Australian sharemarket is more than 20% up in this financial year, and there is much discussion between pundits on everything between an imminent crash, a ‘plateau’ and a brief correction before an onward march.

So it was with interest that I looked at a table sent to me by a fellow financial planner, Dejan Pekic of Newealth. It shows returns from different investment types (asset classes) for each calendar year since 1981. The data is considered robust over this period because before 1979 there were various proxies for the ‘Australian’ sharemarket index, which often excluded major companies. In the table below:

  • the best performing asset class in a particular year is highlighted in green, and recessions are in orange
  • ‘Property’ refers to Australian listed property trusts not residential property
  • Fixed Interest refers to government and corporate bonds, not term deposits
  • returns from International Shares are in Australian dollars, not hedged.

Asset Class Calendar Year Returns, 1981- 2012

Sourced from Newealth Financial Services.

Here are a few observations:

  • In 11 out of the 32 years, the sharemarket has risen by more than 20% in a calendar year. In fact, in more than half of these occasions the rise has been 34% or greater. So rises of 20%+ in a year are not unusual.
  • Nine times out of ten, a negative year in the Australian share market has been followed by a positive year, and that positive year was more than 17%. This supports the notion of sticking to your guns after a bad year.
  • Returns from international shares have been relatively poor compared with Australian shares for many years. International shares have not been the best performing asset class since 1999. But over the last 32 years as a whole, Australian shares have only delivered annual returns of 1.1% more than international shares. Exchange rates are a major factor.
  • In almost 80% of the years, the difference in performance between Australian and international shares was greater than 10%. 25% of the time one was negative and the other was positive. This challenges the popular belief that returns from Australian shares and international shares are highly correlated.
  • Cash has only been the best performer once, in 1994. If you had all your money in cash in that year you would have felt pretty good, because everything else went down. But if you had stayed in cash for the following years you would have missed the 20.2%, 14.6%, 12.2%, 11.6% and 16.1% returns delivered by Australian shares.
  • However, in ‘real’ terms, cash returns have been pretty good over the past 32 years. The average annual return is 8.9% which is 5.3% more than inflation (CPI). This implies that cash is a good investment when inflation is high, which is contrary to what we are often told. Currently, we have a different situation, as interest rates are barely covering inflation.
  • CPI has been below 3.6% for 20 out of the last 22 years. Many market commentators say that low inflation means low share market returns. However, in 15 of those years the Australian sharemarket delivered returns that were more than 10%, with the average return being 12%.
  • Fixed interest has only delivered a loss once in 32 years, with average returns comfortably above inflation. However, interest rates have been declining for practically the whole time. This has been good for fixed interest returns because falling interest rates mean capital gains. The only time fixed interest delivered negative returns was in 1994 when interest rates went up.
  • Listed property has been the best performing asset class in six of the last thirteen years. However, much like Pluto is no longer considered a planet because of its small size, I believe listed property should be considered a sector of the sharemarket. I am waiting for somebody to replace listed property with residential property in a chart like this. Then we can really have a discussion about performance and diversification.

Some will argue that the 1980s is no longer relevant because inflation and high interest rates have been well and truly beaten. But how far back should we go? According to AMP, which has analysed statistics from the Australian Bureau of Statistics and the Real Estate Institute of Australia, the average annual returns from cash, Australian bonds and Australian shares since 1926 are 5.7%, 7% and 11.4% respectively. Australian residential property has delivered 11.1%.

Each of you will have your own opinion, but the figures are what they are. So, whilst past performance is indeed no guarantee of future performance, it’s all we’ve got.

 

  •   27 March 2013
  • 1
  •      
  •   

RELATED ARTICLES

Why buying speculative stocks often proves irresistible

Defence beats offence in investing

Australian large caps outperform small caps over long term

banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

Latest Updates

Planning

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Superannuation

There's a reason why your super is locked up until your 60s

For decades, it seemed settled. Then one controversial idea reignited a debate that could reshape the financial future of millions. The real question isn’t who’s right or wrong, but whether a long-held assumption deserves another look.

Property

The housing slide could become a crash

House prices are sliding across Australia, yet the most dangerous ingredient for a housing crash is still missing. If job losses surge amid growing economic risks, today's correction could become a historic property downturn.

Retirement

Under-retiring: The greatest retirement risk in a generation

Two retirees. Similar savings. Completely different lives. New research from Challenger reveals why some Australians confidently spend in retirement while others hold back and the overlooked factor shaping retirement decisions.

Five risks to watch in markets

Things you may often hear are: a recession is around the corner, markets are overpriced, the AI sector is about to flop at any moment. It’s like the never-ending laundry pile that sits in my house, it never really disappears.

Investment strategies

Do you qualify as ‘rich’?

What does it mean to be 'rich'? For something so universally desired, it is surprisingly difficult to define. That ambiguity creates a challenge for investors and raises a bigger question about what financial success really looks like.

Investment strategies

If you’re worried about your bond portfolio, you’re missing the point

Most investors think they know what bonds are for. But when markets turn volatile, a surprising misunderstanding can lead to costly decisions. Here’s the overlooked lesson that could change how you view your portfolio.

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.