2017 goes down in history as the 6th consecutive year of positive real total returns from all major asset classes for Australian investors – Australian shares, global shares, Australian and global bonds, listed and unlisted commercial property, housing and bank deposits. Six straight years when everything went up has never happened before in history.
Download the enlarged chart here.
The next longest period was four positive years in 1925-28 during the great post-war housing and government spending boom. No prizes for what happened next: the 1929 crash, 1930s depression and defaults by NSW and Commonwealth governments.
Periods of negative real returns from the major asset classes together are relatively rare and short-lived. There were only four individual years where major asset classes posted negative returns together:
What is the common thread that runs through all of these positive and negative return periods? Inflation.
Each of the periods of across-the-board negative real returns had high inflation. Conversely, each of the periods of across-the-board positive real returns had low inflation, including the current six-year rally.
Will markets remain positive for another year to make it seven years in a row? All types of assets everywhere are expensive, but shares, property and bonds tend to do well when inflation and interest rates are low. The good news is that inflation and interest rates are still very low in Australia and around the world and are likely to remain that way for some time yet.
With each of the main asset classes posting positive returns in 2017 it was difficult to lose money.
Download the enlarged chart here.
The active positions that paid off for investors in 2017 include:
As far as regrets go, it is easy to look back with the benefit of hindsight and say (for example), “We should have had more global shares”. However, it was hard to argue for an overweighting to global shares when they were so expensive at the start of the year and with the Brexit vote and Trump election so fresh in the minds of our investors.
Content first published in the financial newsletter cuffelinks.com.au on 1 January 2018.