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 2010
Yearly to
31 Dec. |
Cash % |
Fixed Interest % |
Shares % |
Aust. Listed Property % |
CPI % |
| Aust. |
Int'l |
Aust. |
Int'l |
| 1991 |
11.2 |
19.1 |
15.4 |
34.2 |
20.9 |
20.1 |
3.2 |
| 1992 |
6.9 |
24.7 |
4.6 |
-2.9 |
5.4 |
7.0 |
1.0 |
| 1993 |
5.4 |
10.4 |
12.3 |
40.0 |
24.6 |
30.1 |
1.8 |
| 1994 |
5.3 |
16.3 |
1.3 |
-8.8 |
-7.6 |
-5.6 |
1.9 |
| 1995 |
8.1 |
-4.7 |
19.3 |
21.1 |
26.5 |
12.7 |
4.6 |
| 1996 |
7.6 |
18.6 |
4.4 |
14.4 |
6.8 |
14.5 |
2.6 |
| 1997 |
5.6 |
11.9 |
1.4 |
12.7 |
41.7 |
20.3 |
0.3 |
| 1998 |
5.1 |
12.2 |
15.3 |
9.8 |
32.6 |
18.0 |
0.9 |
| 1999 |
5.0 |
9.5 |
-5.1 |
18.7 |
17.5 |
-5.0 |
1.5 |
| 2000 |
6.2 |
-1.2 |
2.3 |
6.4 |
2.5 |
18.0 |
4.5 |
| 2001 |
5.3 |
12.0 |
-0.8 |
10.4 |
-9.4 |
14.8 |
4.4 |
| 2002 |
4.8 |
5.5 |
19.4 |
-8.8 |
-26.7 |
11.8 |
3.0 |
| 2003 |
4.9 |
8.8 |
14.5 |
14.6 |
-0.3 |
8.8 |
2.8 |
| 2004 |
5.6 |
3.0 |
10.1 |
28.0 |
11.2 |
32.2 |
2.3 |
| 2005 |
5.7 |
7.0 |
-6.5 |
22.8 |
17.3 |
12.7 |
2.7 |
| 2006 |
6.0 |
5.8 |
5.9 |
24.2 |
12.1 |
34.1 |
3.5 |
| 2007 |
6.7 |
3.5 |
10.8 |
16.1 |
-1.3 |
-8.4 |
3.0 |
| 2008 |
7.6 |
14.9 |
12.0 |
-38.4 |
-25.9 |
-55.3 |
3.7 |
| 2009 |
3.5 |
1.7 |
1.9 |
37.0 |
2.8 |
9.6 |
2.1 |
| 2010 |
4.7 |
6.0 |
8.0 |
1.6 |
-2.0 |
-0.4 |
2.7 |
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 |
|
