The best performing investments of the last decade

What is the best investment?

Should you put your money into property or shares? Or maybe you should buy gold bullion or tip some extra money into your superannuation?

This is the type of debate the media loves to sink its teeth into and recently Your Money took a look at which investments performed best over at the past decade. While their results are not surprising, in my opinion they are misleading. But before I explain why, let’s see what they said:

1. Gold was the winner for pure gains, increasing in value by a massive 284% in $US per ounce over the decade.

2. Houses came second with the median Australian house price climbing 127% in the past decade according to the R.E.I.A.

3. Shares. It’s been a difficult decade for share investors with two bear markets and a long boom. Of course, some share sectors outperformed others, but over the last 10 years the All Ordinaries index of 500 companies only rose by 49%.

4. Superannuation is technically not an asset. It’s a structure to hold your investments, and the GFC hit the average super fund hard, however the average balanced fund has still climbed 72% over the decade.

5. Wine. Again this is not really an investment (unless you are a real eccentric) but interestingly the prices of premium reds have climbed 78% over the decade and some very rare Australian wines increased by up to 300% last year.

6. Cash. Unlike shares and property, cash does not deliver capital growth, only income, but some see it as a “safe” investment. In December 1999 the average one-year, fixed-term deposit rate was 5.22% and today it is around 5.09%. The average during the decade was 5.3%.

7. Commercial Property had a shocker of a decade with the Listed Property Trust index falling 31%.

8. Thoroughbreds. The average yearling sale price has jumped 88% during the decade, but of course this type of investment is not for everyone.

9. Diamonds. Diamonds have not been a girl’s best friend, with virtually no growth over the decade.

So is gold really the best long-term investment?

Sure, if you put your money in gold 10 years ago you’d be on a winner, with 284% growth in $US terms; but in reality, a rising Aussie dollar rubbed off some of the shine.

However, the raw data does not clearly show how much better you would be if you invested your money in residential property.

Firstly, the figures only show the Australian average increase in value of 127%, but there are big differences between the best and worst performers. The big winners were Darwin (up 223%) as well as Hobart and Perth (both up 208%), and within each state some properties increased in value by more than double others.

Also, the data doesn’t take into account the benefit property investors receive from leverage. Imagine you had $100,000 to invest; while you could buy $100,000 of gold bullion, you could use the power of leverage and buy $500,000 worth of property.

And while gold would not bring in any cashflow, your tenants would help subside your mortgage payments and the tax man would favour you with non-cash tax deductions in the way of depreciation allowances making your investments strongly outperform any other asset class.

Another reason I love property as an investment is that it is an imperfect market and when I look to invest, I want to invest in an imperfect market. This means that I’m more likely to be able to buy an investment below its true value, or I can sell above its true value.

Let me explain this in more detail…

The world of gold bullion (and to a lesser extent shares) is not a completely perfect market, but it’s about as perfect as it gets. That’s because it is a liquid market where investors are well-informed. All gold bullion is the same price per ounce and I can buy stocks at the same price as anybody else can. In general, the overall marketplace has the same information as I have, because for the most part the information is equal. This shared knowledge creates a more ‘perfect’ market.

On the other hand, real estate is what I would call an imperfect market. I know many people who have bought properties at 10, 15 or even 20% below real market value. If property were a perfect, liquid marketplace, you would not be able to buy a property considerably below its intrinsic value. I can do this every time, and so could you because information, contacts and expertise help you get an insider’s edge in an imperfect market.

Property has created more millionaires in Australia than any other form of investment and considering our population boom and the shortage of supply it is likely that when we look back at the end of this decade we’ll find another group of wealthy Australians who have made their fortunes out of property, by having invested today at the beginning of the next great property boom.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au. Look out for the newly updated 3rd edition of his best selling book How to Grow a Multi-Million Dollar Property Portfolio – in your spare time.