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It is a well-known fact that Australians love to invest in shares and property, often to the exclusion of other asset classes. Depending on market dynamics, this can be a costly proposition and not one that delivers the best risk-weighted returns.
Admittedly, Australian listed property had a stellar year in 2014 and performed strongly, returning 26.4 per cent. All through the year, however, the RBA expressed worries that the low cash rate could be inflating a real estate bubble and newspaper headlines have echoed these worries. In other words, real estate returns may have been high, but so were the risks.
The Australian share market, in contrast, ended the year up 5.3 per cent, which seems less impressive when compared to the 3.85 per cent that investors could have secured from a 12 month term deposit. And in terms of risk, a TD with an Australian licensed deposit taking institution is guaranteed up to $250,000 by the federal government.
Bonds in Australia, however, also had a stellar year, particularly for an asset class that is considered far less risky than equities or real estate. Fixed-income in Australia overall yielded 9.8 per cent for the year while international fixed-income yielded 11 per cent. As the chart below shows, bonds performed strongly with the Bloomberg composite bond index returning 9.81% for 2014, the semi government index 10.652%, the government bond index 10.30% and the corporate bond index 8.07%.
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