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

More Articles

$95bn loss predicted to Australian economy if Div 296 passes: analysis

Analysis from one of the country’s biggest asset management firms has revealed a “deadweight loss” of...

Read full article

Freshwater Resources by Country 2025

Check out the largest freshwater resources by Country in the...

Read full article

Financial abuse move now a certainty

Bipartisan support now exists to prevent perpetrators of financial abuse and domestic violence from accessing...

Read full article

Why more Australian SMSF owners are looking to global equities

Australian SMSFs have historically maintained strong exposure to local assets, with portfolios concentrated in...

Read full article

Are your adult children ready for the wealth transfer?

The inheritance wave is building but most people are unprepared for the ride . Transfers of...

Read full article

Investment and economic outlook, April 2025

The latest forecasts for investment returns and region-by-region economic outlook . Vanguard has...

Read full article

How boosting your super can help you reduce your tax bill

Here's how topping up your super can help reduce your tax bill . One of the best ways to grow...

Read full article

Trustees reminded of minimum pension drawdown

The ATO has reminded trustees they have until 30 June to make their minimum payment from their...

Read full article

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Lindfield NSW

Financial Services Guide - Disclaimer & Privacy Policy

^