In This Issue
September 2024 eGrow
Dear Friends
Revisiting the Marinis Index Investment Philosophy
As clients of Marinis, you would be acutely aware of our very cost-effective Index Investment Philosophy, as highlighted in several past issues of eGrow, including the April 2014 issue. You can access that eGrow here.
My decision to revisit our Index Investment Philosophy was as the result of a recent client email attaching an article about the poor performance of his former (well-known) industry super fund to 30 June 2024.
As active investment managers, the industry fund missed the phenomenal return of the US tech sector last financial year, and the fund underperformed as a result.
I explained that this is the main reason we don’t try to predict winners and losers, because no-one can do so consistently.
In addition, we believe that investing (as opposed to speculating) requires a careful approach, and it means that we have more potential to diversify (diversify, and diversify) between asset classes and within asset classes.
For a refresher on why we always apply our Index Investment Philosophy, I was fortunate to be able to ask Tony Kaye of Vanguard Investments (the first and largest index fund manager in the world) to give us his, and Vanguard’s perspective on why we always recommend an index investing approach.
What history tells us about investing (by Tony Kaye, Senior Personal Finance Writer, Vanguard)
I looked at the value of my share portfolio again today, as I often do. It’s a bit of a habit.
It was down, thanks to falls on Wall Street overnight. Yet, as frustrating as that is, I only have to remind myself just how well my portfolio has done over the longer term. And, really, what happens on markets today isn’t that important in the greater scheme of things.
As investors, it’s always useful to take a look at the bigger picture. Which is why I think the annual Vanguard Index Chart is such a useful resource.
I’ve just been involved in the launch of the 2024 version of the chart, which you can view here.
The Vanguard Index Chart tracks the total investment returns of six major asset classes over the last 30 years – Australian shares, United States shares, international shares (excluding Australian shares), listed Australian property securities, Australian bond securities, and cash.
The 2024 chart covers the period from 1 July 1994 to 30 June 2024 and shows how a starting balance of $10,000 would have changed in value after being invested into each asset class.
Keep in mind that the numbers in the chart represent total investment returns. That is, they assume all investment income earned over time was reinvested and they also exclude any acquisition costs, fees and taxes.
So, how do the long-term investment numbers stack up?
US shares
With an average total annual return of 11.1%, a $10,000 investment in the top 500 US companies at 1 July 1994, when measured by the S&P 500 Total Return Index (in Australians dollars), would have grown to $237,318 by 30 June 2024.
Australian shares
The same investment into the Australian share market over the same time period, when measured by the S&P/ASX All Ordinaries Total Return Index, would have increased to $135,165. That represents a 9.1% per annum average annual return.
International shares
Invested into international shares (when measured by the MSCI World ex-Australia Net Total Return Index – in Australians dollars), $10,000 would have risen to $105,082 based on the 8.2% average annual return over the period.
Australian listed property
In Australian listed property securities, when measured by the S&P/ASX 200 A-REIT Total Return Index, a $10,000 investment would have grown by 7.8% per annum to $94,587.
Australian bonds
Australian bonds, when measured by the Bloomberg AusBond Composite 0+ Yr Index, would have delivered an average annual return of 5.6%, increasing a $10,000 investment fivefold to $51,797.
Cash
The lowest long-term return over three decades has been from cash. When measured by the Bloomberg AusBond Bank Bill Index, it would have earned just 4.2% per annum and grown to $34,552.
The long-term returns take in a number of significant downturns, including the dot.com crash in 2000, the GFC, and the short-lived 2020 COVID-19 correction.
Key lessons
So, what are the key lessons? Firstly, when it comes to investing, it really does pay to ignore short-term market events – even during volatile periods – and to stick to your investing strategy so you can harness compounding returns over the long term.
Secondly, different asset classes perform differently from year to year. The best performing asset class in one year can actually become the worst performing in the next year.
In the 2023-24 financial year for example Australian listed property outperformed all other asset classes, achieving a return of 24.6%. In 2022-23 it achieved a return of 8.1%, while US shares gained 23.5%.
So it’s always important to have good diversification via a mix of investments across multiple asset classes. This will help to smooth out portfolio performance over time.
And another thing
As of today, 20 September 2024, Centrelink will be indexing pensions from $29,023.80 to $29,754.40 per annum for a single full age pensioner and from $43,752.80 to $44,855.20 per annum combined for full age pension couples. This increase (even for your part pensions) plus your tax-exempt account based pension and/or annuity income should assist with the cost-of-living issues we all face.
And one more FINAL thing
Over the last 12 months or so I have been reminding everyone to be on guard against scammers and to follow the Federal Government’s scam watch: http://www.cyber.gov.au/protect-yourself
One of the layers of security our clients have is the personal relationship with their adviser and our team. We recognise voices, we know the individuals, we are business ‘friends.’
As always, please don’t hesitate to contact me or any of the team if this edition of eGrow raises any questions; call (08) 8130 5130 or email admin@marinisgroup.com.au
Yours sincerely
Theo Marinis CFP®, B.A., B.Ec., CPA., MCIFAA
Financial Strategist
Authorised Representative