When financial markets experience volatility, many investors obviously worry; but what are the real effects of a “volatile market”?

If you are a long-term investor, with a timeframe of five years or more, you cannot afford to overlook the benefits of growth investments such as shares or property. As an astute investor you will be aware of the fact that the value of these assets will vary over time – both up and down. However, if you have purchased a sound asset, whether it is shares or property, the price will generally rise over time.

When you invest in growth assets it is important to accept that you should be targeting an average rate of return. Some years you may achieve returns well in excess of your target, while in other years the return may be lower, and sometimes negative. If your targeted average is achieved over the longer term you will meet your objectives.

It is also important to note that different asset classes will outperform in different years. This is illustrated by looking at five major asset classes over the 10 years to June 2017. Frequently the asset class which outperformed in one year showed a poor, or even negative, return the following year. This illustrates the importance of having a diversified investment portfolio covering all the major asset classes.

Financial Year Returns for major asset classes:

Year to30 June Cash AustralianFixed Interest Listed Property Trusts (Aust) Australian Shares International Shares
2008 7.4% 4.4% -36.3% -12.1% -21.3%
2009 5.5% 10.8% -42.3% -22.1% -16.3%
2010 3.9% 7.9% 20.4% 13.8% 5.2%
2011 5.0% 5.5% 5.8% 12.2% 2.7%
2012 4.7% 12.4% 11.0% -7.0% -0.5%
2013 3.3% 2.8% 24.2% 20.7% 33.1%
2014 2.7% 6.1% 11.1% 17.6% 20.4%
2015 2.6% 5.6% 20.3% 5.7% 25.2%
2016 2.2% 7.0% 24.6% 2.0% 0.4%
2017 1.8% 0.2% -6.3% 13.1% 14.7%
Average 3.91% 6.27% 3.25% 4.39% 6.36%

Source: Vanguard Interactive Index Chart. Note all figures shown are before fees and taxes.

Always remember…

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Note: past performance is not an indicator of future results.

This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any investment decisions.