Share     Facebook icon Twitter icon Twitter icon

Beyond share prices

Share |

Back to front page

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. 

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.

 

 

Source:

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients' circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2018 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Back to front page