Hot Issues
spacer
ATO issues update on cryptocurrency compliance traps
spacer
How likely is a global trade war?
spacer
Gig economy spike prompts calls for super policy changes
spacer
Australia's vital statistics
spacer
What your age should say about your super
spacer
Downsizing requires holistic tax planning
spacer
Millions of multiple super accounts erode savings
spacer
Why your retirement intentions are critical
spacer
Plans for study into elder abuse
spacer
Our website is really our digital office.
spacer
Dissecting the downsizer contribution
spacer
The Goldilocks effect - Economic and market update 4Q 17
spacer
Rates, inflation and yield - five graphs to help make sense of it all
spacer
Australia. All you need to know to be the expert.
spacer
Potential pension minefields
spacer
Confusion lingers over post-death insurance
spacer
Non-lodgement numbers slashed, 30,000 funds still in ATO’s sights
spacer
Business confidence hits 5-month high: NAB
spacer
New Year resolutions, New Year strategies
spacer
How will downsizer contributions work for SMSFs?
spacer
Where Australia is at. Our leading indicators.
spacer
‘Read the tea leaves,’ brace for cryptocurrency regulation, advisers told
spacer
Power of retiree super dollars
spacer
Beyond share prices
spacer
Financial advice is the leading trigger to review insurance inside Super
spacer
Opinion – 2018 to be the year of the machine
spacer
Rising risks to the status quo
Article archive
spacer
Quarter 1 January - March 2018
spacer
Quarter 4 October - December 2017
spacer
Quarter 3 July - September 2017
spacer
Quarter 2 April - June 2017
spacer
Quarter 1 January - March 2017
spacer
Quarter 4 October - December 2016
spacer
Quarter 3 July - September 2016
spacer
Quarter 2 April - June 2016
spacer
Quarter 1 January - March 2016
Beyond share prices

Investors shouldn't overlook that there are two components to sharemarket returns – dividend yield and capital gains (or losses).

       

 

Few investors would have missed the news reports of late pointing out that although Australia's sharemarket has broken through the 6000-point mark, it's still below the record pre-GFC high. (See What's in a number? – Smart Investing, November 24.)

But looking at share price movements alone can give investors a misleading impression and encourage them to overreact to short-term market shifts and other market "noise".

And by excessively focussing on asset price movements, investors may overlook the rewards from compounding total returns (as returns are earned on past returns) and from taking a strategic, long-term approach to investing.

Once reinvested dividends are taken into account, the performance of the Australian sharemarket in the GFC aftermath looks much better – particularly considering the benefits of dividend franking.

On 1 November, 2007, the S&P/ASX200 (prices only) closed at 6828.7 points, its pre-GFC closing high. And on 6 March, 2009, this index closed at 3145.5, its lowest close in the depths of the GFC.

By contrast on 1 November, 2007, the S&P/ASX200 accumulation index (share price plus reinvested dividends) closed at 43,094.3, its pre-GFC high. And on 6 March, 2009, this index fell to 21,298.1, its lowest point in the depths of the GFC.

Now move forward to the beginning of 2018.

On 2 January, 2018, the S&P/ASX200 Index (prices only) opened at 6065.1 points. This was still below its pre-GFC closing high yet 93 per cent above its GFC closing low.

And on the same day, (2 January, 2018), the S&P/ASX200 accumulation index opened at 60,387.4. This was 40 per cent above its pre-GFC closing high and 184 per cent above its GFC closing low.

Figures from super fund researcher SuperRatings reinforce why investors should take a disciplined, long-term approach without being swayed by day-to-day movements in asset prices.

SuperRatings estimates that $100,000 invested in a median balanced super fund on November 1, 2007 – remember that is the day when the Australian market reached its pre-GFC closing high – would have increased to $163,218 by the beginning of 2018. Critically, the total doesn't include contributions.

 

Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
15 January 2018
vanguardinvestments.com.au