Is the Australian ASX share market still a good investment in the 2020s?
Well, it certainly has been in the past. ASX shares have returned an average of 8-10% per annum to investors over the past hundred years.
But (as any good investment product will tell you), past performance is no indication of future prosperity.
A lot of people deride the ASX as being dominated by 'banks and miners' – not exactly beacons of 21st century capitalistic sophistication.
This is true in many ways. If we take the top twenty companies in Australia, five are banks and four are miners/oilers.
In comparison, the top 20 companies over in the US are dominated by names like Apple, Microsoft, Amazon, Facebook, Johnson & Johnson, Visa and Warren Buffett's Berkshire Hathaway.
A far more sophisticated collection, to be sure.
Why not just invest in the USA?
It might be no surprise then that many investors would urge you to look to a tech-heavy index like the American S&P 500 instead of our own S&P/ASX 200 for a 21st-century investment plan.
After all, Microsoft and the FAANG stocks are meant to be the 'disruptors' of our time, right? Who would want a boring old bank or miner when you can have companies that are changing the world?
To some extent, I see the logic of this argument. Companies like Facebook, Alphabet and Microsoft are definitely shaping the social and commercial fabric of our society.
But for one, the big, big gains that these companies can provide to investors have mostly run their course. I'm not saying that any of these 'disruptors' are bad investments (I own a few myself).
But Microsoft currently has a market capitalisation of US$1.42 trillion. Sure, it might double to US$2.84 trillion over the next ten years (or maybe even sooner). But does that make it a killer investment? Not really.
I'm thinking more about who these 'disruptors' are actually selling their technology to. Its businesses like Commonwealth Bank of Australia (ASX: CBA), Woolworths Group Ltd (ASX: WOW), Ramsay Health Care Limited (ASX: RHC), Wesfarmers Ltd (ASX: WES) and probably every other company on the ASX. Whether it's cloud services, mapping technology, software or even Microsoft Office, our ASX companies are sure to be buyers of some of it.
Technology makes businesses work more efficiently and effectively. And that helps boost profits, earnings and dividends for ASX investors.
Foolish Takeaway
So, by all means, invest in US tech companies or the S&P 500. But don't write off the ASX just because we're not home to these companies. I'm not done with ASX shares – I think the 21st-century will be yet another successful period for our stock market. And so I would urge everyone who wants to abandon our ASX to have a think about where the growth of the future is going to come from.
