The greatest share market chart of all time

Credit: mages Money

Pop quiz: How much have Australian shares returned, on average, over the past 30 years?

Go on, guess. Is it:

a. -9.6% per year

b. 1.3% per year

c. 7.76% per year, or

d. 10.8% per year

You may be surprised to learn that the answer is D) 10.8% per year. Pretty impressive, huh? Indeed, it is. According to Vanguard’s latest Index Chart for 2015, Australian shares outperformed US shares (10.3%), International shares (8.6%), cash (7.5%), listed property (9.4%) and Australian bonds (9.3%) over the 30-year period to June 30, 2015. With $10,000 invested upfront and all income reinvested, Vanguard says your initial capital would’ve turned into some $215,685.

Over 10 years, Aussie shares came in second to US shares. However, over the five years to June 30, 2015, listed property, US shares and international shares outperformed the 9.4% annual return achieved by Australian shares.

Here’s an extract from the report, which you can — and should — view here.

Source: Vanguard Australia

Source: Vanguard

Observing the chart, it’s easy to see many economic (e.g. the Asian financial crisis and Australia’s last recession) and geopolitical (e.g. September 11 and the Iraq invasion of Kuwait) events that have defined the investing returns achieved by long-term investors.

In retrospect, it’s easy to look back now and see that in spite of countless geopolitical and economic events — some of which brought on market ‘crashes’ — shares have still proven to be the single-best investment over the long term.

That’s right, in spite of – not in the absence of – countless short-term risks, Australian shares still achieved an average annual percentage return in the double digits.

What now

I’m not going to say Australian shares will achieve 10%+ returns in the next 30 years or that the market will even produce a positive return over the next five years.

However, I believe shares – both local and international – will be the best-performing investment class over the long term.

I think there’s also an important distinction to draw here, too. Remember, the annual returns cited above, are for the markets’ returns, or the S&P/ASX All Ordinaries Accumulation Index for Australian shares and the S&P500 Total Return Index for US shares – so just imagine if you outperformed the market!

For example, if you avoided mining shares like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), which dragged on the ASX after the GFC, you may have done better than average.

Or if you avoided the bubble in technology shares during the Dotcom boom and bust but still invested in quality shares, you may have done better again. Of course, what’s important is that you’re near fully invested at all times – to maximise your earnings potential.

Foolish takeaway

I understand investing in the share market isn’t for everyone. However, don’t for a minute think you’ll get rich by holding cash forever (after all term deposits are paying less than 3% per year!).

If you want a simple and stress free alterative to picking your own shares and holding for the long term, try a low-cost Exchange Traded Fund (ETF) or index fund. ETFs usually cost less than 1% of your assets to manage. You simply buy an ETF like you would a normal share and the ETF manager (like Vanguard or iShares, for example) tracks the market’s performance by pooling your money together with other investors and buying every share in that market.

For example, the Vanguard MSCI Index International Shares ETF (ASX: VGS), Vanguard US Total Market Shares Index ETF (ASX: VTS) and Vanguard Australian Shares Index ETF (ASX: VAS) tracks the performance of global shares, US shares and Australian shares, respectively.

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Motley Fool writer/analyst Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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