The Investment Asset Classes
In deciding the
appropriate mix of assets that will form your investment portfolio you
can choose from four broad classes of asset:
| Cash |
| Considered
the safest asset class, cash funds are available at short notice and
have low risk of capital loss. The 'cost' of this low level of risk is
that cash funds generally offer very low rates of return with no tax
benefits. Typically includes bank accounts, credit union accounts,
short term deposits, bank bills, commercial note s and promissory
notes. ^ |
| Advantages |
|
High security, High liquidity |
| Disadvantages |
|
Low rates of return, No tax benefits |
| Fixed Interest |
| Although
a range of fixed interest securities are available, most have the same
core characteristics, including a fixed investment term, regular
interest payments (higher than cash funds) and a low level of capital
loss. Typically includes term deposits, bank bonds, debentures,
unsecured notes, preference shares, mortgage based investments and
inflation indexed investments. ^ |
| Advantages |
|
High security, Regular income, Returns known in advance |
| Disadvantages |
|
Low rates of return, no tax benefits |
| Property |
| Considered
to be a growth asset due to higher long term returns, property
investments can provide a combination of income (via rental payments)
and capital growth (via increases in property values). Typically
property investments include retail, residential, commercial, rural,
hotel and industrial. Property investments can be made through listed
or unlisted units trusts, unlisted property syndicates or direct
property investment. ^ |
| Advantages |
|
Rental income, Capital growth, Tax advantages |
| Disadvantages |
|
Illiquid, Long term investment, Volatility, Capital Gains Tax |
| Shares |
| Provide
investors with part ownership of a company and the associated benefits
(eg dividend income, share price increases) and risks (eg capital
volatility, economic downturns). Typically include industrial and
resource sectors |
| Advantages |
|
High growth, Tax advantages, Long term capital growth |
| Disadvantages |
|
Short term volatility, Capital gains tax |
The
following table compares the returns of each of the asset classes, and
demonstrates the volatility (or lack thereof) of returns for the period
1991 to 2004
Yearly to
30 June |
Cash % |
Fixed Interest % |
Shares %
|
Property % |
CPI % |
| Aust. |
Int'l |
Aust. |
Int'l |
| 1991 |
13.51 |
22.36 |
13.03 |
5.90 |
-1.71 |
7.70 |
3.40 |
| 1992 |
9.00 |
22.05 |
23.57 |
13.30 |
7.53 |
14.70 |
1.20 |
| 1993 |
5.91 |
13.93 |
24.63 |
9.90 |
32.59 |
17.10 |
1.90 |
| 1994 |
4.93 |
-1.13 |
-4.09 |
18.50 |
0.70 |
9.80 |
1.70 |
| 1995 |
7.10 |
11.88 |
22.44 |
5.70 |
14.64 |
7.90 |
4.50 |
| 1996 |
7.75 |
9.45 |
-9.60 |
15.80 |
7.17 |
3.60 |
3.10 |
| 1997 |
6.77 |
16.76 |
9.13 |
26.60 |
29.02 |
28.50 |
0.30 |
| 1998 |
5.11 |
10.88 |
26.19 |
1.60 |
42.10 |
10.00 |
0.03 |
| 1999 |
5.04 |
3.28 |
-2.57 |
15.34 |
8.60 |
4.31 |
1.10 |
| 2000 |
5.58 |
6.17 |
13.73 |
13.70 |
24.06 |
12.05 |
2.40 |
| 2001 |
6.08 |
7.42 |
14.53 |
8.85 |
-5.63 |
14.51 |
6.00 |
| 2002 |
4.70 |
6.20 |
3.41 |
-4.50 |
-23.90 |
15.20 |
2.80 |
| 2003 |
5.03 |
9.67 |
4.12 |
-1.08 |
-17.88 |
12.15 |
3.40 |
| 2004 |
5.30 |
2.33 |
3.85 |
22.37 |
19.93 |
17.21 |
2.00* |
| Avg return |
6.56 |
10.09 |
10.17 |
10.86 |
9.80 |
12.48 |
2.45 |
| Real return |
4.19 |
7.72 |
7.80 |
8.49 |
7.44 |
10.11 |
n/a
|
| Rank |
6 |
4 |
3 |
2 |
5 |
1 |
n/a
|
* Year ended percentage change as at 31 March 2004
Source: Lonsdale Securities / Morningstar
| Cash - UBS Warburg Bank 0 + years |
|
Shares (Australian) - S&P/ASX All Ordinaries
|
Fixed Int. (Australia) - UBS Warburg
Composite 0 + years |
|
Shares (Int'l) - MSCI World Acc Index with Gross Div ($A) |
| Fixed Int. (Int'l) - Lehman Brothers Global Aggregate Index Hedged |
|
Property - S&P/ASX 300 Property Trust Accumulation Index |
|
