What do shares and property usually earn? Which is best?

[ March 19, 2015 ]

Clients often ask what sort of rate of return is it reasonable to expect on an investment? Or, which is better, shares or property? Personally, I tend to quote page 6 of the ASX Russell Investments Long Term Investing Report dated 1 July 2013 which says that the gross returns for the 20 years to December 2012 were 9.8% for Australian shares and 9.5% for Australian property. These were the highest earning asset classes over this period. Since 2012 both the share market and the property market have risen significantly, so its seems reasonable to continue with this data even though it’s getting a little old. You may notice that Australian shares beat international shares. This is expected, since international shares do not generate franking credits and the Australian economy was just about the best performing economy in the world right through this period, including the GFC years from 2008 on. You may also notice that most fund managers have not beaten these twenty year gross returns. That’s mathematically expected, and one of the reasons why Dover encourages you to recommend direct investments in shares and property. Its also why we like index funds. I routinely provide this document to my clients, in PDF form via a hypertext link embedded in the SOA, so they can see it for themselves. I often use a paragraph like this:

You were interested in the long term performance of shares compared to property. The answer is they tend to be almost the same, and this becomes more likely as your time horizon increases. For example, the ASX Russell Investments Long Term Investing Report, dated 1 July 2013, says that the gross returns for the 20 years to December 2012 were 9.8% for Australian shares and 9.5% for Australian property. Property and share values have continued to rise since December 2012. We stress that past returns are not always a good guide to expected future returns, that shares require a minimum holding period of at least ten years, that property requires a minimum holding period of at least twenty years, and that the true long term value trends will only emerge over these time frames.

The Dover Group