Thursday, December 12, 2024

Another good financial year for lazy investors! How did your returns stack up?

30 Jun 2024 5 month(s) ago

Congrats on another good financial year for lazy long-term investors!

Today’s pair of charts show returns from the main asset classes and sectors for Aussie investors for the past two June financial/tax years, plus other key data including inflation, exchange rates, commodities prices, and house prices.

The standard 70/30 ‘growth’ fund.

A standard diversified passive ‘growth’ fund (70/30 shares/bonds) would return around 11% after fees for Aussie investors for the 12 months to June 2024. 

The bottom line on the charts shows returns of 12% before fees on a typical 70/30 mix(*).

This is almost exactly the same return as last financial year (2022-3). A lot has changed in the world over the course of the past two years, but returns were virtually the same.

Even after inflation of say 4%, a lazy return of 11% is still a very healthy 7% ‘real’ (after inflation) return for the year.

Lazy?

I say ‘lazy’ because any ‘passive’ investor would have achieved these returns without trying to chase hot stocks or funds or ‘themes’ or fads, or fiddle with opaque ‘alternatives’, or whacky ‘new’ asset classes, or listened to perennial doomsayers prattling on about recessions or political crises or world wars or [insert latest scare here].

The big end of town

I use a standard 70/30 ‘growth’ mix for this story as that is what most large superannuation funds use as their ‘default’ option.

Unfortunately, most large ‘professionally run’ super funds will report lower returns on their ‘default’/‘growth’ funds again this year because they are stacked with unlisted real estate and ‘infrastructure’ assets that have suffered big losses in recent years – and they are probably still covering up even more hidden losses by using fudged valuations.

The other main reason for lower performance of the big funds is that they have floors full of expensive fund managers and analysts, and they like to fiddle a lot (to look busy). 

For the 2022-3 financial year, returns on large super fund ‘growth’ options averaged around 9% after fees, but simple off-the-shelf diversified index funds with the same 70/30 asset mix returned 11% after fees. I expect this to continue for the 2023-4 year as well.

What is '70/30'?

(*)  There are variations in what is actually in the 70/30 or ‘growth’ portfolios offered by the major passive/ETF providers, but most are very similar.

The 70% in ‘growth’ assets is a mix of Australian and global shares, with the global shares side usually 50% hedged. 

The 30% in ‘defensive’ assets is a mix of Australian fixed rate investment grade government/semi/corporate bonds, and global fixed rate investment grade government/semi/corporate bonds, fully hedged. 

Can’t always be lazy

Being lazy (ie not fiddling or being swayed by chattering ‘experts’ or shrill media) works most of the time, but not always, unfortunately. Some tweaking does make sense from time to time as conditions change (for example, I have avoided fixed rate bonds in recent years).

About once or twice per decade there is a major market rupture that requires some serious thinking and major changes. 

In the coming days I will post my usual wrap-up for the latest month and financial year. In the meantime, we can take some time to see how our own portfolios fared.

‘Till next time – happy investing!

Thank you for your time – please send me feedback and/or ideas for future editions!

 

Ashley Owen

 

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Director/Principal, Owen Analytics Pty Ltd (current)

Investment Markets Research & Analytics, Portfolio Construction & Management, Corporate Finance, Venture Capital, M&A, and IPOs. Investment Committee membership, consulting to advice firms and financial institutions.

Co-founder & Regular Contributor, Firstlinks (current)

Co-founder of Australia's leading investment and superannuation newsletter and website for industry professionals and investors.

Non-exec Director, Third Link Investment Managers (current)

Leading Australian equities fund-of-funds that donates all management fees to Australian charities. The fund has donated in excess of $21m to a range of Australian chartities since inception in 2008. 

Chief Investment Officer, Stanford Brown (past)

Responsible for managing over $2 billion AUM in multi-asset class portfolios and discretionary accounts at a privately-owned advice practice.

Director & Joint CEO at Philo Capital Advisers Pty Ltd (past)

Specialises in investment portfolio construction & management, multi-asset class asset allocation, and global macro strategies.

Check out my full bio here

 

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The information contained in this document relates to historical, factual events and returns, and contains general commentary and observations about financial markets, asset classes, and asset allocation. This document, or any part thereof, does not, and is not intended to, constitute investment advice, or financial advice, or financial product advice, in any jurisdiction in which it is published, re-published or read. It does not recommend, encourage, or influence readers to buy, hold, sell, or deal in any financial product or security. Where securities of financial products are mentioned, it is purely for the purposes of illustration, context, and/or education, and not intended to influence anyone to buy, hold, sell, or deal in it. The information is current when written. All reasonable measures are taken to ensure its accuracy at the time of publication, but the author accepts no responsibility or liability for any errors or omissions. This document is only provided to, and intended for, holders of Australian Financial Services Licences. It should not be used or relied upon by any person or entity other than a duly licenced AFSL holder, or authorised representative thereof. The author receives no benefit, financial or otherwise, from any product provider, or product issuer, or any other firm involved directly or indirectly in the provision or services in or to financial markets or industries, whether mentioned in the report or not. Any opinions expressed by the author are his alone, and are intended for the purposes of education.