The end of financial year is with us, and if we take a look at how some of the major asset classes have performed, it turns out the last 12 months have been pretty good for investors.
Residential property has stolen the limelight, with figures from CoreLogic showing property values have climbed 8.3% across our state capitals over the past year. But as market conditions vary widely between locations it’s important to look at the picture on a state-by-state basis. Over the last 12 months for instance, the property markets in Sydney (up 11.1%) and Melbourne (11.5%) have done most of the heavy lifting for the national figure. Perth and Darwin have been far less rewarding with values falling by 3.8% and 6.4% respectively.
The thing is, while property attracts the lion’s share of attention, plenty of other investments have outperformed bricks and mortar. Figures from Morningstar show that over the current financial year to the end of May, Australian shares dished up total returns – capital growth plus dividends, of 13.89%.
A number of global sharemarkets have performed well too, and that’s been good for international shares with gains of 17.84%. Infrastructure investments also turned in a solid result, with the S&P Global Infrastructure index showing returns of 13.73%.
By contrast, cash returns remain in the doldrums. At best, you may earn 3.0% on a 12-month term deposit right now, and after tax and inflation you will be lucky to keep your purchasing power, let alone go forward.
Of course, cash still plays a role in any portfolio – just how much of a role will depend on your life stage. As I am now in my 60s I am moving from a wealth-creation to a wealth-preservation strategy. Logically, I should be taking less risk because if I lose lumps of capital it is hard for me to replace it through work as my working years are winding down. But for younger investors with time on their side, it’s worth holding a decent chunk of your portfolio in growth assets.
This can be achieved by steadily drip-feeding spare cash directly into individual shares. Or it can be done by investing in managed funds – or a combination of both.
Bear in mind, growth assets don’t always deliver the positive returns we’ve seen this financial year. They can, and do, fall into negative territory at times, which is why investors should take a long-term outlook.
No one can say for sure how investment markets will perform in the financial year ahead, but spreading your money across a variety of investments is a smart way to manage risk while benefiting from any market upswings.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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