Vanguard 2022 Index Chart: Diversification an effective antidote for volatility
Balaji Gopal
Vanguard has launched its 21st annual Index Chart plotting the performance of major asset classes over the last 30 years, as a powerful depiction of why broad diversification is crucial to long-term investment success.
This year, as markets grapple with rising interest rates, inflation and geopolitical conflicts, total returns across the board are in negative territory.
The best performing asset class in FY22 was cash with 0.1 per cent return, a title last held during the GFC when investors flocked to the relative safety of cash and high-quality fixed income products.
Conversely, the worst performing asset class was Australian listed property, returning -12.3 per cent in FY22. Notably however, Australian listed property returned 33.2 per cent the year before and was amongst the best performing asset classes.
“Vanguard’s 2022 Index Chart is perfect proof of why investors should diversify. In the last 30 years, every major asset class has had a turn at being the best performing, as well as the worst,” said Balaji Gopal, Vanguard Australia’s Head of Personal Investor.
“While bonds and equities have experienced a rare joint downturn this year, history has proven market conditions as such are only fleeting and are not expected to materially affect long-term returns.
“Investors who maintain a well-diversified portfolio with a healthy fixed income allocation will experience less volatility and be rewarded in the long run; markets will inevitably rebound and investment returns will grow again”.
Also illustrated in the chart is how an initial investment of $10,000 invested in broad Australian shares in 1992 would have grown to nearly $131,500 today, an average of 9 per cent return per annum. The same $10,000 in U.S. shares would have grown to $182,000, returning 10.2 per cent p.a.
|
$10,000 invested in 1992 |
Accumulated investment value at 30 June 2022* |
% returns per annum |
|
Australian Shares |
$131,413 |
9.0 |
|
U.S. Shares |
$182,376 |
10.2 |
|
International Shares |
$94,184 |
7.8 |
|
Australian Bonds |
$55,588 |
5.9 |
|
Australian Listed Property |
$90,243 |
7.6 |
|
Cash |
$35,758 |
4.3 |
*with no acquisition costs or taxes, and all income reinvested
“Accumulated returns this year compared to last have dipped, but for the broad Australian market to still on average return 9 per cent per annum (even with inflation concerns, COVID-19 and the GFC to account for) should be reassuring news for investors,” said Mr Gopal.
“It’s a good reminder amidst today’s challenging conditions that successful investing depends not on market timing or picking the winning stock, but rather on broad diversification, long-term perspective and the discipline to stay invested when things get tough”.
