Property out performs other investments over a 20 year period – that’s the finding of the latest Long term Investing Report from Russell Investments and the ASX.
Property investment experts will not be surprised to hear that, over the long term, residential property investments returned an average of almost 10% compared with 8.7% for Australian shares and 8% for overseas shares.
The Russell Investment report was the 16th edition of the annual report commissioned by the ASX, and provided a comparison of the returns of different asset classes over 10 and 20-year period. The report looked at average returns as well as tax implications and costs associated with each type of investment.
Interestingly, the report found that all asset classes performed well in the period 2003 to 2013, despite the widespread economic downturn during the global financial crisis in 2007 to 2008. Other findings from the report included:
- When looked at over a 10 year period, Australian shares returned an average of 9.2% and global shares returned an average of 8.2%
- Over a ten year period, residential property investments returned an average of over 6% – a comparable figure to the returns found in Australian fixed income and global listed property funds
- Over the ten-year period, residential property also proved to have the most stable returns compared to the stock market.
In their supplementary commentary to the report called “Seeing Beyond Biases” Russell Investments suggest that these figures suggest that sometimes the best approach to investing is to “set and forget” rather than react to every short term fluctuation in the market – this applies to all types of assets including residential property investments and shares.
They also found that investors tended to become overly risk-averse and panicky during economic downturns, which in turn led to them withdrawing from the stock market or selling their property investments. They would then remain pessimistic about investing for a considerable period of time. Conversely, in periods of extended growth and high returns, investors tended by become overly optimistic and expected their gains to continue well into the future.[ii]
These reactions simply showed that, no matter how experienced they are, investors are human and sometimes find it difficult to separate their emotions from investment decisions. It also explains why many first time investors find it so hard to take the plunge, get their finances in order and find a suitable property to invest in. The key is to understand this natural “flight or fight” response, and the ways in which you can protect yourself from short term thinking. Part of the property investment tips offered by experts is that property should be only considered as part of a long term strategy – a 10, 15 or 20 year strategic plan – a fact born out by the findings of the report.