Share market naysayers are quick to remind aspirational investors that the sharemarket has gone nowhere in the last ten years.
Exactly ten years ago, before the worst effects of the GFC, the All Ordinaries (INDEXASX: XAO) stood approximately 10% higher than it is today.
That's an annual compound 'growth' rate (CAGR) of a negative 1.07%.
The All Ordinaries monitors the level of share prices of the 500 largest companies on the ASX and therefore doesn't include dividends. Including these in return calculations shows investors who mimicked the All Ordinaries Accumulation Index ended up with a CAGR of approximately 3.8% per annum.
In dollar terms, an investment of $10,000 became $14,520.
This still isn't very exciting though and barely covers increases in the cost of living over that same ten year period.
So, with anemic returns like that, is the buy-to-hold approach dead?
Well, not quite.
Investors in REA Group Limited (ASX: REA), Mineral Resources Limited (ASX: MIN), Technology One Limited (ASX: TNE) or G8 Education Ltd (ASX: GEM) have all enjoyed double-digit per annum returns over the last ten years.
In case you think I'm cherry-picking, there have been some remarkable losers as well.
Think Santos Ltd (ASX: STO), Primary Health Care Limited (ASX: PRY), QBE Insurance Group Ltd (ASX: QBE), and AMP Limited (ASX: AMP) which have not only underperformed the All Ordinaries Accumulation Index, but are worth nominally less today than they were a decade ago.
So what?
If you wish to boost your portfolio returns, there a couple of points I wish to emphasise.
First, if you're going to invest in an index for a part of your portfolio, I'd go international and keep only very small amounts in the Australian versions of the index due to a lack of diversity.
For example, the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ), and National Australia Bank Ltd. (ASX: NAB) collectively make up 23.35% of the All Ordinaries Index and the top 20 stocks make up more than half.
The concentration of these stocks simply don't provide adequate diversification for a portfolio in my view and so I'd consider the iShares Global 100 ETF ISGL100ETF CDI 1:1 (ASX: IOO) or the Vanguard MSCI Index International Shares ETF V300AEQ ETF UNITS (ASX: VAS) for a decent level of diversification if you wish to use an index fund as a foundation for your portfolio.
Second, you should aim to buy yourself, over time, a portfolio of 15-20 stocks.
With a little research and study, you can identify companies that are growing their top-line revenues and bottom-line net income which will hopefully allow shareholders to come out in front of the index over a decade.
I say 'hopefully' of course because no one's capital is guaranteed when investing in enterprises and, undoubtedly, some of your stocks will fail to perform.
Investing in a number of stocks though gives you a better opportunity of not wiping yourself out financially with one or two bad picks, and still receive reasonable returns.
The alternative would be stay safe and keep all of your money in cash, but given the extremely low returns that cash provides today, you'd be guaranteeing yourself reduced purchasing power each and every year if you took this option.
So, there's risk with cash just as much as there is risk with investing in listed businesses.
History shows, well-diversified investors with a long-term mindset can easily achieve a return above inflation and the relevant index if they invest in financially-sound businesses with good growth prospects.
Foolish takeaway
It really is a case of 'seizing the day' when it comes to your financial future.
Investing in company shares should therefore form a part of everyone's portfolio given the outstanding returns that sharemarket investing has provided to investors over many decades.
If you're looking for additional ideas, or if you just wish to start, click on the link below for your free report.
