The Investment Sector Performance Report measures the pre and post tax returns on shares, listed property, residential investment property, fixed interest and cash over 10 years from 1 January 1993 to 31 December 2002.
"ASX is not surprised by these results" ASX Managing Director and CEO, Richard Humphry said. "Real returns have been particularly strong for Australian shares, residential investment property and listed property trust investments over this period. However, it is a particularly good result for shares considering the market has experienced two bear markets over this period and the property market has also had a long boom."
"This report also highlights how important it is for investors to consider all the variables when judging what constitutes their best investment choice. Tax treatments of investment returns, liquidity and inflation will severely affect just what is the best choice for individual circumstances."
"For example, if you are paying the top marginal tax rate and have your cash sitting in an interest bearing account earning 4.8% per annum, then after tax, you end up with only 2.4% earnings. Considering inflation levels are at 2.6%, your money will actually be going backwards. These results again confirm the role listed investments should play as part of a diversified portfolio, given their superior returns over the longer term." For the first time investment performance of these investment classes has also been measured over 20 years, from 1 January 1983 to 31 December 2002. These results reflect the pattern seen in previous years with Australian shares outperforming all other investments on an after-tax basis. Australian shares returned between 14% and 12.1% per annum depending on the marginal tax rate. Listed property had nominal returns of between 12.3% and 10.2% per annum depending on the marginal tax rate. Residential investment property returned between 12.5% and 10.7% per annum depending on the marginal tax rate applied. Fixed interest had more modest returns, of between 9.1% and 5.8% per annum after tax. Cash returned just 6.6% per annum on the lowest marginal tax rate and less than CPI for investors on the highest marginal tax rate, with returns of just 3.9% per annum.
ASX has commissioned Towers Perrin to undertake this study since the early 1990s.
Survey Highlights
For Full Survey Results, please click here
- Specifically, over the 10 years to 31 December 2002, listed property trusts performed the best with a gross return of 12.2% pa and an after tax return of 10.7% pa and 8.5% pa, for the bottom and top tax thresholds respectively
- In terms of after tax returns over the 10 years, Australian shares were just 0.2% pa behind with an after tax return of 10.5% pa and 8.3% pa, for the bottom and top tax thresholds respectively. The gross return of 10.5% pa was considerably lower than either residential investment property or listed property. Australian shares were able to boost their performance by virtue of their considerable tax effectiveness, most notably through franked dividends
- Residential investment property was the third best performer after tax with a return over 10 years of 10.2% pa and 8.2% pa for the bottom and top tax thresholds respectively. The gross return was 11.6% pa.
- The severe downturn in overseas share markets in recent years was reflected in the lower gross return of 8.4% pa over the 10 years. Due to the many different tax regimes globally, after tax returns were not calculated for this asset class.
- Fixed interest investments returned 8.1% pa gross which fell to 6.3% pa and 4.1% pa after tax on the bottom and top tax thresholds respectively over the 10 years.
- Cash was the poorest performer with a gross return of 4.8% pa over the 10 years. The after tax return on the lowest tax threshold was 3.8% and for the highest 2.4% pa. The CPI over this period was 2.6%.
- The changes announced to the calculation of capital gains and the freezing of indexation as at 30 September 1999 have been reflected in the calculation of the tenyear returns presented in this report. Against this background, at the top marginal tax rate the effective tax rate for Australian shares is around 21%, residential investment property is around 29%, listed property is around 30%, fixed interest and cash is around 49%. The relatively low effective tax rate for Australian shares can be attributed mainly to the benefits of dividend imputation. Listed property also enjoys more favourable tax treatment. Returns from Listed Property Trusts (LPTs) come from distributions (dividends) paid to investors and changes in the value of the properties held in the trust. Dividend yields on most property trusts range from 6% to 10% made up of taxable and tax deferred components. The tax deferred component is generally between 15% and 100% of the total dividend. The tax deferred portion of the dividend reduces the investors cost basis, meaning investors do not pay tax on this portion of the dividend until they sell the trust and then at the concessional capital gains tax rate.
- Listed property is also included within the returns for shares. It is the 4th largest sector on the Australian sharemarket
