It’s always interesting to look back over a year to see how investments have performed.

In 2019, if you had money invested into Australian and international shares, listed property and bonds, you should have done relatively well. But what’s even more interesting is to check out longer-term returns, because that’s where the real value of investing really comes into play. I’ll get to that a bit later, and explain why key strategies such as goal setting, sticking to your plan, diversification and cost are so important in building your wealth.

First though, let’s take a high-level look at the last 12 months. If you’ve watched or read the news, you’d probably be aware it’s been a volatile year on financial markets. That’s been driven by a range of political and economic factors, largely involving trade tensions between the United States and China.

But, despite all the volatility and often negative commentary, the Australian share market as a whole has returned close to 20 per cent this year. Investors in listed property companies have done even better, with returns of around 24 per cent. And bonds, which provide income payments like a bank account, have delivered almost 10 per cent.

That compares with money in savings accounts. If that’s where most of your cash has been invested, you haven’t done well. The return from cash is now less than 2 per cent, because interest rates are at record lows.

Of course, past performance is never an indicator of future performance. The best and worst-performing asset classes will often vary from one year to the next.

Taking a longer-term view of returns is a much better approach, because that shows the real benefits of the key points already mentioned — having a realistic plan, being disciplined with additional contributions over time, having a broad spread of investments in your portfolio, and keeping your investment costs as low as possible.

If we look back over the last 20 years, we can see that an initial investment of $10,000 made back in 2000 would now be worth anywhere between around $22,000 (in cash) and $68,000 (in listed international property). That’s assuming all returns along the way were reinvested.

You can do this yourself by using the Vanguard Interactive Index Chart. And you’ll see that, while different assets have gone up and down over time, on a longer-term basis they have all tracked higher.

No one can see the future, and luckily you don’t have to, because a key benefit of diversification is that you can spread your money across a whole range of asset classes, so you’re not over-exposed to one or two, and vastly lower your risk. In other words, the more shares and bonds you own, the more protection you have against loss — and the more chances you have to pick winners.

Which is why more and more investors are using exchange-traded funds (ETFs) and index funds, because they provide easy, low-cost exposure to hundreds and sometimes thousands of companies across one or more share markets, including Australia’s. They can easily be accessed online without even leaving the house.

So, as we head into 2020, now is a fantastic time to set your investment goals and plan ahead.

Staying the course in investing, and not being distracted by the constant noise in the markets is essential. And, the lower your costs, the higher your overall returns will be over the long term.

Tony Kaye — HTM Guest Contributor (Vanguard Investments Australia)

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