Beyond share prices
Investors shouldn't overlook that there are two components to sharemarket returns – dividend yield and capital gains (or losses).
Few investors would have missed the news reports of late pointing out that although Australia's sharemarket has broken through the 6000-point mark, it's still below the record pre-GFC high. (See What's in a number? – Smart Investing, November 24.)
But looking at share price movements alone can give investors a misleading impression and encourage them to overreact to short-term market shifts and other market "noise".
And by excessively focussing on asset price movements, investors may overlook the rewards from compounding total returns (as returns are earned on past returns) and from taking a strategic, long-term approach to investing.
Once reinvested dividends are taken into account, the performance of the Australian sharemarket in the GFC aftermath looks much better – particularly considering the benefits of dividend franking.
On 1 November, 2007, the S&P/ASX200 (prices only) closed at 6828.7 points, its pre-GFC closing high. And on 6 March, 2009, this index closed at 3145.5, its lowest close in the depths of the GFC.
By contrast on 1 November, 2007, the S&P/ASX200 accumulation index (share price plus reinvested dividends) closed at 43,094.3, its pre-GFC high. And on 6 March, 2009, this index fell to 21,298.1, its lowest point in the depths of the GFC.
Now move forward to the beginning of 2018.
On 2 January, 2018, the S&P/ASX200 Index (prices only) opened at 6065.1 points. This was still below its pre-GFC closing high yet 93 per cent above its GFC closing low.
And on the same day, (2 January, 2018), the S&P/ASX200 accumulation index opened at 60,387.4. This was 40 per cent above its pre-GFC closing high and 184 per cent above its GFC closing low.
Figures from super fund researcher SuperRatings reinforce why investors should take a disciplined, long-term approach without being swayed by day-to-day movements in asset prices.
SuperRatings estimates that $100,000 invested in a median balanced super fund on November 1, 2007 – remember that is the day when the Australian market reached its pre-GFC closing high – would have increased to $163,218 by the beginning of 2018. Critically, the total doesn't include contributions.
Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
15 January 2018
vanguardinvestments.com.au
Latest Newsletters
Hot Issues
- Aged care report goes to the heart of Australia’s tax debate
- Removed super no longer protected from creditors: court
- ATO investigating 16.5k SMSFs over valuation compliance
- The 2025 Financial Year Tax & Super Changes You Need to Know!
- Investment and economic outlook, March 2024
- The compounding benefits from reinvesting dividends
- Three things to consider when switching your super
- Oldest Buildings in the World.
- Illegal access nets $637 million
- Trustee decisions are at their own discretion: expert
- Regular reviews and safekeeping of documents vital: expert
- Latest stats back up research into SMSF longevity and returns: educator
- Investment and economic outlook, February 2024
- Planning financially for a career break
- Could your SMSF do with more diversification?
- Countries producing the most solar power by gigawatt hours
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- Quarterly reporting regime means communication now paramount: expert
- Plan now to take advantage of 5-year carry forward rule: expert
- Why investors are firmly focused on interest rates
- Super literacy low for cash-strapped
- Four timeless principles for investing success
- Investment and economic outlook, January 2024
- Wheat Production by Country
- Time to start planning for stage 3 tax cuts: technical manager
- Millions of Australians lose by leaving savings in default MySuper funds
- Vanguard economic and market outlook for 2024: A return to sound money
- An investment year of ups and downs
- How to tame the market's skewness
- The Countries that Export the Most Wine in the World
- Tips for preparing for the best tax outcomes
Article archive
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
January - March 2018 archive
- Why your retirement intentions are critical
- Plans for study into elder abuse
- Our website is really our digital office.
- Dissecting the downsizer contribution
- The Goldilocks effect - Economic and market update 4Q 17
- Rates, inflation and yield - five graphs to help make sense of it all
- Australia. All you need to know to be the expert.
- Potential pension minefields
- Confusion lingers over post-death insurance
- Non-lodgement numbers slashed, 30,000 funds still in ATO’s sights
- Why have a financial planner?
- Business confidence hits 5-month high: NAB
- New Year resolutions, New Year strategies
- How will downsizer contributions work for SMSFs?
- Where Australia is at. Our leading indicators.
- ‘Read the tea leaves,’ brace for cryptocurrency regulation, advisers told
- Power of retiree super dollars
- Beyond share prices
- Financial advice is the leading trigger to review insurance inside Super
- Opinion – 2018 to be the year of the machine
- Rising risks to the status quo
- UPDATE: Australia's vital statistics
- As share prices rise, the risk-return trade-off gets tricky
- Young Aussies have a ‘terrifying’ level of financial knowledge
- Principles of Financial Success
- You are never too young to start your financial plan
- Technical expert flags top 3 traps with CGT relief
- Become a better investor through your holiday reading
- Australia's vital statistics
- Made in Albania? How globalisation is creating challenges for Chinese policymakers
- Our Advent calendar for 2017