Count’s 12 monitored investments- 14 years on
Nearly 14 years ago, Count invested $10,000 into each of 12 different investments to illustrate how different types of investments perform at different times and especially over the long term.
We invested across Australian and International shares, property, fixed interest and cash, but how have we fared?
Share funds would be the top performers. Diversified funds would be next. Listed property would be a solid performer, but over the long term, would not overtake share funds. Cash and interest based investments would be at the lower end of the performance scale.
It’s been 14 years... and for the most part, our predictions have been correct! Except the worst global recession for 60 years has temporarily elevated the cash based investments, but with Interest rates very low these will again under perform.
Portfolio Performance in Difficult markets
Global sharemarkets rose to an all time high in late 2007. The onset of the global credit crisis caused 2008 to be a disaster year for equity and property markets and Count’s predictions for the 12 monitored investments were really put to the test.
2008 saw dramatic falls in the value of Count’s 12 monitored investments. The worst performance was from the Australian property exposure, with the Colonial First State Property Securities Fund falling 55.3% over the year. To highlight how quickly relative performance can change, this fund was the 5th best performer over the life of the investment until the start of 2008, and the 10th best performer at the end. Australian shares had a very difficult year, with The Perpetual Industrial Share Fund (-34.8%), and the Colonial First State Imputation Fund (-31.6%) both recording large negative returns.
International shares experienced similar difficulties but the falls in values were moderated in Australian dollar terms due to the depreciation in the Australian dollar against the US dollar. The diversified funds in the portfolio also posted large negative returns with the exception of the conservative diversified fund. The ING Tax-effective Income Trust (-28.9%), the BT Future Goals Fund (-25.7%) and MLC Balanced Fund (-25.4%) were all negative. The portfolio’s cash based investments were the best performers with the CBA Term Deposit and Macquarie CMT returning 6.4% and 6.2% respectively.
In 1995 when the portfolio was established, we predicted that the share funds would be the top performers, with diversified funds following. We also predicted that listed property would be a solid performer, with cash and interest based investments at the lower end of the scale.
2008 highlighted how quickly investment markets can change. Taking a one year view, the initial predictions made for the portfolio appear completely off. Cash has been the best performer, followed by diversified funds, then equities then property. But interestingly, even after one of the most historically volatile years on record, the performance of the portfolio remains largely in line with expectations. The CBA Term Deposit appears to go against the predictions being the 5th best performer over the life of these investments. This is not expected to continue over the long term and is consistent with the argument for portfolio diversification.
Overall portfolio performance
Despite going through one of the most difficult years faced by equity and property markets, the long term performance of the 12 monitored investments remains healthy. In almost 14 years, our initial investment of $120,000 has increased by around 129% to $275,122.89. This is an average yearly return of approximately 6.4%.
Where should investors look in 2009 and beyond?
2008 was a year that most investors would like to forget. It did however, re-iterate some of the key principles of investing described below. While the property, Australian and International sharemarkets had a very difficult year, over a longer time frame they are still expected to be the strongest performers. The performance of Australian shares over the full period clearly demonstrates this. It is important to remember that markets can change quickly. What performs well over one year can be quite different over five or ten years. Keeping in mind your investment time frame is crucial in determining which asset classes should be included in your portfolio.
Our own portfolio demonstrates two key principals
of successful long term investing:
Minimising risk through diversification
By investing across sectors, assets and markets, we have
diversified our portfolio and ensured that our risk is
minimised. Over the years, the positive returns from
the strong performers of the group have smoothed out
negative returns from the poorer
performers. If we had invested solely in one area, such
as Asian shares, our overall portfolio return would have
been much lower, and overall, a very high-risk strategy – despite
the positive returns this sector has produced in recent
years.
Ride out volatile markets and stick to your long term
plan
The performance of our investments has varied over time.
What performs well one year, can falter the next – showing
that it is very difficult to be able to predict when and
where to invest.
Even the top performing fund has had its fair share of
ups and downs over the years, but by sticking it out over
the long term, the investment has paid off. Rather than
trying to pick the best investments from year to year,
the safer strategy is to ride out the bad times and adhere
to your long-term investment plan.
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As at 10 June, 2009 |
