THERE will always be a debate between stockbrokers and property analysts as to which asset class will provide the best returns over a period of time.
There is little doubt that Australian investors have favoured property over many years.
The reasons are manifold and usually fairly complex.
The one area that little or no debate exists over is the fact that we, as investors, need to diversify our portfolios, as it is difficult to predict the course of markets.
BT Funds Management has looked back over the last 20 years at the various asset classes and examined the returns that have been generated.
This is encapsulated in this table .
The interesting features to note in the table are as follows:
* Whether you looked at it over a 3, 5, 7, 10, 15, or 20-year term the area of international shares outperformed all the others. Haven’t we been warning of the dangers of holding your entire portfolio in Australian shares only?
* 1994 was a particularly bad year when every asset class other than cash delivered negative returns.
* It is fairly rare for one asset class to be the best performer for more than two years. There have been a few instances over the last 20 years when international shares have outperformed the others more than twice but these are the exception rather than the rule.
* Cash rarely outperforms other asset classes. 1994 was the only year in the last 20 when it did.
* Bonds also rarely dominate performance tables. Two occasions in 20 years is not a strong indicator of performance.
* Property has only outperformed the others once in the last 20 years.
* The main conclusion to be drawn is that it is essential that you invest money in the Australian and international sharemarkets if you are looking to achieve any reliable and strong returns.
The table highlights the need to diversify the portfolio to try and minimise the variability of the returns that you can achieve.
Again, this is something that advisers have been desperately trying to ram home to clients.
