A recent study looking into the historical performance of the most popular investments for Australian investors has shown that residential property has outperformed all other asset classes in the past ten years.
Residential property is the best performing asset class in this time period.
1. Residential Property
According to the report by Russell Investments, residential property has generated 8.1 per cent average annual compound return over the last ten years, making it the best performing asset class in this time period. This return has been measured on as a population-weighted average return across major cities in Australia and does not come as a surprise to those who follow the property market. It is important to note, though, that returns vary between regions and suburbs and properties in cities like Melbourne and Sydney, for example, have performed better.
The second best-performing asset class has been currency-hedged global bonds, which generated a 7.5 per cent total return per annum. Bonds have performed well as an asset class as investors moved money from shares into the safer option bonds as the past decade was regularly affected by financial crises, which shook the stock market.
Australian bonds have performed well.
3. Australian Bonds
Australian bonds have also performed well in the last decade. Australian bonds generated 6.1 per cent average total annual returns in the same time period, suggesting that home grown bonds make for good income generating assets and should be part of any investor’s diversified portfolio.
4. Global Shares (Currency-Hedged)
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Currency-hedged international shares have generated 5.5 per cent average annual returns for their investors in the last decade and, thereby, come in as the fourth best-performing asset class. While shares are traditionally a key holding of a diversified investment portfolio, it is interesting to note that property and bonds have outperformed shares in the last ten years. Perhaps a higher allocation to real estate and bonds could help boost portfolio performance in the coming years?
5. Australian Shares
The Australian stock market has not fared well in the past ten years compared to other asset class, only generating a 4.3 per cent average annual return. However, it is important to note that this period also includes the global financial crisis of 2008, where Australian stocks witnessed the worst losses since the 1970s.
High historical returns do not guarantee future performance. However, historical returns do give us a glimpse of what future returns may look like.