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Markets demonstrate continued resilience over long run

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By Jessica Penny
  •  
3 minute read

Looking back on the performance of major asset classes over the last 30 years, markets have exhibited a capacity to bounce back from short-term volatility.

According to Vanguard’s 22nd annual Index Chart, the last three decades have seen most asset classes bounce back from market-shaking events such as Russia’s invasion of Ukraine, COVID-19, and the Global Financial Crisis.

While Australian shares saw an average return of 9.2 per cent per annum over the last 30 years, this fiscal year saw returns of 14.8 per cent, a noticeable uptick from -7.4 per cent in FY22.

Much like Australian shares, Vanguard noted that other asset classes saw positive returns, a significant turnaround from the previous financial year’s all-round negative figures.

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The best-performing asset class in FY23 was US shares, with returns of 23.5 per cent compared to -2.4 per cent the year prior.

Notably, cash was the second-lowest returning asset class with 2.9 per cent this year but was the best-performing asset class in FY22 with 0.1 per cent.

As such, Balaji Gopal, head of financial adviser services at Vanguard Australia, underscored the importance of approaching investing with a “long-term mindset” as volatility smooths out in the long run.

“While investors shouldn’t rely on past performance, 30 years of market history has proved that the impact of geopolitical, economic, and social events on performance is usually short-lived, and markets will typically recover and rise over time.”

Mr Gopal highlighted that over the last few decades, bear markets have only lasted an average of 0.9 years and are generally followed by a bull market, averaging 6.5 years.

“Investors who stay invested through downturns are therefore best poised to benefit when markets inevitably bounce back,” he explained.

As such, he said asset classes that have performed well in one year does not mean they will produce the same promising results the next year.

“Take bonds for example – last year, fixed income markets were caught in a perfect storm of surging inflation, rate hikes, and an unusual correlation with equities. This year, however, return expectations for bonds have significantly improved and yields and spreads have stabilised.”

“This is why diversifying across asset classes – and making sure you have both growth (such as equities) and defensive components (such as bonds) in a portfolio – is the most effective way to mitigate market uncertainty.”

Vanguard further highlighted that an initial investment of $10,000 made in broad Australian shares in 1993 would have grown to nearly $138,800 today, while the same $10,000 for US shares would have grown to $176,200, showing returns of 9.2 per cent and 10 per cent per annum, respectively.

“Investing in the broad market via index funds or ETFs can produce powerful returns for investors over time if they give their investments the opportunity to grow,” Mr Gopal added.

“Let the market work for you by investing broadly, diversifying, and staying the course.”

Markets demonstrate continued resilience over long run

Looking back on the performance of major asset classes over the last 30 years, markets have exhibited a capacity to bounce back from short-term volatility.

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