Property pips shares

Published in the Herald Sun, September 2011  by Karina Barrymore 

For all those property lovers out there stick to your guns. Residential property has again outperformed all other investments during the past 10 years, before and after tax.

However, it's not all bad news for equity investors, as shares nudged ahead to have the highest returns over a 20-year period.

The annual Russell Investments and Australian Securities Exchange Long-Term Investing Report found residential property was a better choice during the 10 years to December 2010, with a 10.1 per cent annual return compared with just 8.4 per cent for Australian shares. 

Australian bonds were the third-best investment class, returning 5.8 per cent, while international shares were the worst, going backwards by an average of 4 per cent each year.

However, the traditional property-versus-shares debate can still be argued both ways, depending on your preference and tax rate.

Property stacks up as the best investment class for 10 and 25 years before tax and also for 10, 20 and 25 years if you are in the lowest tax bracket. 

However, for high-income earners on the top marginal tax rate, Aussie shares have been a better performer over a 20 and 25-year time frame albeit by a small margin.

The annual long-term investment report is one of only a few that include returns based on the "real life" situation of having to pay tax.

Russell Investments director Greg Liddell has called on the Federal Government to make reporting returns after-tax mandatory, particularly for superannuation funds, as tax plays a major role in the value of returns for investors.

"Pre-tax returns only tell half the story," Liddell says. "It is an issue retail investors also have to address given the added cost tax adds to investing."

Wealth Within analyst Dale Gillham says the report confirms that each asset class "has had its day in the sun" and that diversification is the key to long-term investment returns.

One golden rule I have is that any investment should have capital gain and income," he says.

"Therefore, cash is one area I would have limited funds."

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