{"id":7336,"date":"2022-03-07T12:01:14","date_gmt":"2022-03-07T01:31:14","guid":{"rendered":"https:\/\/adelaideprivatewealth.com.au\/how-discipline-has-paid-off-for-share-market-investors\/"},"modified":"2022-03-07T12:01:14","modified_gmt":"2022-03-07T01:31:14","slug":"how-discipline-has-paid-off-for-share-market-investors","status":"publish","type":"post","link":"https:\/\/adelaideprivatewealth.com.au\/how-discipline-has-paid-off-for-share-market-investors\/","title":{"rendered":"How discipline has paid off for share market investors"},"content":{"rendered":"
Investors worldwide have been rattled by the heightened volatility on share markets over recent weeks.<\/p>\n
A combination of factors have largely been to blame, particularly fears around rising interest rates as global inflation levels continue to surge.<\/p>\n
Over January the U.S. share market fell more than 5 per cent, its worst performance since the onset of the COVID-19 pandemic in early 2020.<\/p>\n
The Australian share market was hit even harder, falling more than 6 per cent over the first month.<\/p>\n
But that\u2019s just the short-term story. New Vanguard data shows that, over the last decade, share markets have outperformed all other investment sectors.<\/p>\n
In fact, from the start of 2012 up until the end of 2021, investors with a broad share market exposure who reinvested all the dividends they received over time back into the share market would have achieved strong returns.<\/p>\n
The U.S. share market was undoubtedly the best place to be over the last decade.<\/p>\n
With an average return of 20.6 per cent per annum, a $10,000 initial investment on 2 January 2012 would have grown more than six-fold to around $66,000 by 31 December 2021. That\u2019s a total return of 552 per cent.<\/p>\n
International shares \u2013 measured by index funds that invest across thousands of companies around the world \u2013 achieved an average annual return of 16.8 per cent.<\/p>\n
That performance would have turned a $10,000 investment a decade ago into more than $47,000 by the end of last year, for a total return of more than 370 per cent.<\/p>\n
By contrast, the Australian share market hasn\u2019t performed as strongly as either the U.S. or international shares.<\/p>\n
Its average annual return has been 11 per cent, which would have seen a $10,000 investment at the start of 2012 grow to about $28,000.<\/p>\n
Yet that\u2019s still almost triple the initial investment sum and represents a total return of about 180 per cent.<\/p>\n
Other asset sectors exposed to the share market also haven\u2019t done badly for investors who\u2019ve stayed the course over the last 10 years.<\/p>\n
Take the listed property sector. Despite hitting some major speed bumps along the way, including being the best-performing asset class in 2019 and the worst-performing in 2020, it\u2019s delivered an average annual return of 13.8 per cent.<\/p>\n
So a $10,000 investment into a fund tracking the returns of all the listed property companies on the Australian share market in 2012 would have grown to almost $37,000 by 31 December 2021.<\/p>\n
That\u2019s not too bad either, representing a total return of 266 per cent.<\/p>\n
The big investment takeaway here is that short-term volatility on markets has little if any bearing on long-term investment returns.<\/p>\n
In early 2020, over just a few weeks, global share markets tumbled more than 35 per cent.<\/p>\n
Yet, by the end of 2020, markets had recovered most of their lost ground. Last year they hit new record highs.<\/p>\n
It\u2019s only when you take a long-term view of the performance of share markets over time that you get to see the bigger investment picture.<\/p>\n
And it shows that while markets do experience volatility and can sometimes fall quite sharply over short periods, they consistently rise over longer time frames.<\/p>\n
During times of uncertainty, shares are likely to be much more volatile than fixed income assets such as bonds.<\/p>\n
The 10-year return from bond markets has been just 4.2 per cent per annum, however bonds tend to act as a portfolio stabiliser during choppy conditions.<\/p>\n
Cash returns, which closely reflect official interest rates, are largely unaffected by what happens on share markets.<\/p>\n
Record low interest rates have resulted in the 10-year return from cash being 1.9 per cent. If you\u2019d left $10,000 in a bank term deposit since 2012, you\u2019d now have about $12,000.<\/p>\n
After inflation is taken into account, that\u2019s effectively a negative real return.<\/p>\n
The best way to smooth out intermittent volatility and to achieve more consistent returns is to spread your holdings over a range of different assets.<\/p>\n
By following a strategy of reinvesting investment distributions such as dividends, and by making additional contributions over a long period of time, the combination of market growth and compounding returns will likely deliver strong results.<\/p>\n
Even a low initial balance will grow substantially over time when combined with compounding investment returns.<\/p>\n