Well, being 1 July today, the 2025 financial year has just come to a close. As it turns out, it was quite a lucrative year for the S&P/ASX 200 Index (ASX: XJO) and the Australian share market by extension.
On the surface, the ASX 200 index itself began July 2024 at 7,767.5 points. Yesterday, that same index closed at 8,542.3 points, meaning investors enjoyed an on-paper gain of 9.97% for FY25.
Already, this metric is looking strong. However, it leaves out a key component of Australian stock market returns – the dividend income that investors also receive over the year.
To find just how much those dividend income returns add to our total, let's analyse an index fund that tracks the ASX 200 Index. In this case, the iShares Core S&P/ASX 200 ETF (ASX: IOZ) suits our needs just fine.
So over FY25, this exchange-traded fund (ETF) went from $31.44 per unit to $34.59 by the close of trading yesterday. That translates to a return of 10.02%, almost exactly mirroring the index it tracks (as you'd expect).
However, IOZ units also paid out no fewer than four dividend distributions over FY25, reflecting the income that the fund itself received from its underlying ASX 200 holdings.
These four dividend distributions totalled $1.07 per IOZ unit. If we plug these four payments into the unit price that this ASX 200 index fund started FY25 at, we get a dividend distribution yield of 3.4%.
That brings IOZ's return, and thus the rough return for the ASX 200 Index, to 13.42%.
Image source: Getty Images
How could ASX investors have benefited from the ASX 200's bumper FY25?
Well, chances are you already have, even if you don't own any ASX shares or index funds directly. That's because most of our superannuation funds are invested in ASX 200 shares, with many simply using index funds themselves for exposure to ASX shares.
But if you're looking to invest outside superannuation, you could have gotten that very same return by simply investing in an ASX 200 index fund like IOZ yourself.
Index funds are designed to be simple, bottom-drawer investments that require little thought or maintenance. They work by holding the largest 200 shares listed on our share market and weighting them according to market capitalisation. This means that the larger shares, such as National Australia Bank Ltd (ASX: NAB), have more influence in the overall portfolio than the smaller ones, like Harvey Norman Holdings Ltd (ASX: HVN).
Index funds are typically rebalanced every three months to ensure that they remain accurate in this regard. This process means that the best-performing stocks rise to the top of the index over time, while the poorest performers are slowly weeded out.
Of course, if you'd rather try and buy individual stocks yourself, that option is always open. However, even professional investors struggle to outperform a simple index fund over long time horizons. The admirable performance over FY25 just goes to show how lucrative owning a simple index fund like the IOZ ETF can be.
