The average annual returns from six major asset classes over the last 30 years.

Some events can become ingrained in our memories.

Take four years ago for example, when the rapid spread of COVID-19 sparked mass panic on global share markets.

After having reached record highs in late February 2020, share markets went into freefall during March, stunning investors, as the economic shockwaves from the pandemic were quickly felt around the world.

It was indeed a harrowing time for many investors. Over just a few weeks, the Australian share market dropped more than 35%, in tandem with similar falls on other markets. It’s now widely referred to as the COVID Crash.

Yet, just weeks later, share markets were once again surging, full steam ahead. Within a year they were trading at higher levels than at the start of the crash. And, despite bouts of volatility since, largely reflecting prevailing economic conditions, markets are once again trading near record levels.

It’s a powerful lesson for investors. While it can be tempting to react to short-term market events and sell out of investments during periods of extreme volatility, it pays to stay the course over the long term.

That’s evident from the 2024 Vanguard Index Chart below – which not only illustrates the power of long-term investing and compounding returns but the importance of spreading investment risk by investing across different asset classes.

View chart here

The Vanguard Index Chart tracks the total investment returns of six major asset classes over the last 30 years – Australian shares, United States shares, international shares (excluding Australian shares), listed Australian property securities, Australian bond securities, and cash.

The 2024 Vanguard Index Chart covers the period from 1 July 1994 to 30 June 2024 and shows how a starting balance of $10,000 would have changed in value after being invested into each asset class.

For example, the dollar and percentage returns for United States shares are based on the 30-year return from the S&P 500 Total Return Index (in Australians dollars).

Keep in mind that the numbers in the chart represent total investment returns. That is, they assume all investment income earned from an investment fund over time was reinvested back into units in the same fund. The returns numbers also exclude any acquisition costs, fees and taxes.

How different asset classes have performed…

U.S. shares

With an average total annual return of 11.1%, a $10,000 investment in the top 500 U.S. companies at 1 July 1994, when measured by the S&P 500 Total Return Index (in Australians dollars), would have grown to $237,318 by 30 June 2024. That’s a total compound return of more than 2,270% without an investor making any additional investments beyond the initial $10,000 in 1994, other than by reinvesting all the income distributions that they received over time.

Australian shares

A $10,000 investment in the Australian share market over the same time period, when measured by the S&P/ASX All Ordinaries Total Return Index, would have increased to $135,165 based on the same strategy of reinvesting all the income distributions. That represents a 9.1% per annum average annual return over the 30-year period, and a total compound return of more than 1,250%.

International shares

Invested into international shares (when measured by the MSCI World ex-Australia Net Total Return Index – in Australians dollars), $10,000 would have risen to $105,082 based on the 8.2% average annual return over the period. This represents a total compound return of about 950%.

Australian listed property

In Australian listed property securities, when measured by the S&P/ASX 200 A-REIT Total Return Index, a $10,000 investment would have grown to $94,587. This represents an average annual return of 7.8% and a total compound return of almost 846%.

Australian bonds

Australian bonds, when measured by the Bloomberg AusBond Composite 0+ Yr Index, would have delivered an average annual return of 5.6%, increasing a $10,000 investment fivefold to $51,797. This represents a total compound return of around 418%.

Cash

The lowest long-term return over three decades has been from cash. When measured by the Bloomberg AusBond Bank Bill Index, it would have earned just 4.2% per annum and grown to $34,552. This is over $200,000 less than an investment in the broad U.S. share market and about $100,000 less than an investment in the broad Australian share market. Even still, the total compound return from cash would have been almost 246% based on a $10,000 initial investment.

Why diversification matters

Asset class returns are rarely consistent. The best-performing asset class one year can be the worst in the following year.

In the 2023-24 financial year for example Australian listed property outperformed all other asset classes, achieving a return of 24.6%.

In 2022-23 it achieved a return of 8.1%, which was well below the double-digit returns from U.S, international and Australian shares. And in 2021-22 Australian listed property was the worst-performing, delivering a 12.3% negative return.

Each asset class has experienced years of best performance and worst performance, with no clear pattern, therefore making it impossible to pick which asset class will be next year’s winner.

This demonstrates the importance of having a diversified mix of investments across multiple asset classes.

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