Asset classes and performance

By gaining an understanding of the asset class you're investing in, you can begin to know what to expect – although there are no guarantees. Generally, the greater an asset's potential return, the greater the risk of loss - especially over the short term. This is why it's so important to choose an investment that suits your goals, timeframe and attitude to risk.

Return and risk - it's often a trade-off

Performance as at 31 March 2006	1 Year (%)	3 Years (% pa)	5 Years (% pa)	10 Years (% pa)

Australian shares	30.22	26.45	14.89	13.36
International shares	27.96	16.56	-1.63	8.21
Listed property	18.48	17.44	16.7	15.02
Australian fixed interest	6.74	5.23	5.6	7.57
International fixed interest	3.28	-1.12	-0.35	6.12
Cash	5.8	5.49	5.23	5.54

Indices used: S&P/ASX 300 accumulation index, MSCI World ex Aust (net divs) in $A, S&P/ASX 300 Property index,UBS Composite 0+yrs index, Salomon Smith Barney World Government Bond unhedged in AUD, UBS Bank Bill 0+ years index.

International shares

If you invest in international shares you are exposed to the same risks associated with Australian shares but also to additional risks such as political and economic uncertainties, lower regulatory supervision, movements in currency and more volatile, less liquid markets.

The pay-off is the potential for strong returns. International shares suit long-term investors who are comfortable with volatility and are willing to take more risk in search of greater earnings.

Australian shares

Australian shares have shown strong long-term growth over the past forty years. Their dividends have averaged around 3.7% per year for the past 20 years* Australian shares can also offer tax advantages through capital gains tax discounts and imputation credits.

However, Australian shares remain one of the most volatile asset classes because their price can be affected by many factors - such as industry trends, market sentiment and economic conditions. Australian share investors should be comfortable with volatility and the possibility of negative returns, and aim to invest over a long period.

*Average dividend yield for the All Ordinaries index for 20 years to 30 June 2005

Property

Although property-related investments are influenced by economic conditions and events that affect the overall sharemarket, historically they have been less volatile than international and Australian shares. On the flip-side, they have also been outperformed by international and Australian shares in the long term. Property investors should be comfortable with volatility and the possibility of negative returns.

Fixed interest

While fixed interest securities are generally less volatile than shares and property, historically they have also earned less over the long term and so may suit investors who are looking for some growth, but are mostly concerned with protecting their capital.

Cash

Cash is a low risk investment - but returns are also generally low and your investment may be eroded by inflation. Cash generally suits investors who do not like risk and may need access to their funds in the near future.

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