Over the past 20, 15 or 10 years you would have been better off investing in cash than the volatile small caps market or global equities, according to exclusive analysis by Smart Investor of newly released Morningstar data.
The best asset class by some distance was Australian shares, with hedged global fixed interest the next best performer. An investment in the S&P/ASX 200 index in June 1993 would have generated a cumulative return of 470 per cent, equivalent to a compound annual growth rate (CAGR) of 9.1 per cent (see the tables below).
A hedged exposure to global fixed interest was the surprise next-best performer, with a CAGR of 8 per cent over two decades, equal to a cumulative total return of 370 per cent. And that return would have come with a lot less angst. Only 3 per cent of one-year returns from global fixed interest were negative, according to Morningstar, against 20 per cent for Aussie shares. Small caps and global equities gave the most hair-raising ride on this measure, with more than one in three one-year returns in the red (see bottom table).
The industry standard of using average annual performance for funds and asset classes can conceal the damaging effect of extreme volatility on cumulative returns – using average performance over 20 years, small caps (6.1 per cent a year) outperformed cash (5.4 per cent). But, as we see, you would have made more money with in a deposit account.