Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 155

Do investment principles stand test of time?

Time travel is a skill that would dramatically transform the world of the investor. Sadly, despite all the technological advances of the past two decades, the ability to go back or forward in time remains the realm of science fiction novels, not a killer app on an investor’s smartphone. While time travel may still be the domain of TV and film producers, the passage of time is a real-world test for investment ideas even if - as we are constantly reminded - history is not a great predictor of future returns.

What has changed over 20 years?

Twenty years ago, Australia was a country of 18 million people with a median age of 37 and the median weekly household income was $637 while the cash rate was set at 7.5%. The fledgling superannuation system had accumulated assets of $262 billion some four years after the super guarantee contribution had been introduced.

In 1996 a new, more modest undertaking was getting started - it was the year Vanguard established its Australian business which was its first outside the US. It seems an appropriate time to look back and see how the underlying investment principles that Vanguard has used in guidance to clients has stood up to the test of two decades.

The market has changed markedly. Of the top 10 companies by market capitalisation on the Australian share market in 1996, half have either dropped out of the top 10 or are no longer on the ASX.

With help from actuarial firm Rice Warner, we decided to look at the past 20 years through the time capsule of three different investors in 1996 – a 40-year-old, a 20-year-old and a newborn baby – and test how our investment principles have stood up to 20 years of significant geo-political shocks, stunning market rises and dramatic declines that included a global financial crisis.

All our investment strategies are underpinned by four core principles:

  • Goals: Create clear and appropriate investment goals
  • Balance: Develop a suitable asset allocation using broadly diversified funds
  • Cost: Use low-cost, transparent investment options
  • Discipline: Keep perspective and long-term discipline

Outcomes for our three investors over two decades

One of the first lessons is that investors have been rewarded for taking extra risk.

An investor who invested $10,000 at the start of 1996 in cash would have seen the nominal value grow to $26,800. Someone who had invested in the Australian sharemarket index would have seen the portfolio value grow to $51,400. The US sharemarket index was just slightly behind at $48,100 while Australian bonds grew to $37,600.

For our three investors, Rice Warner was asked to model the superannuation outcomes. Remember back in 1996, super was really just getting started, so our 40-year-old did not get the benefit of a full career under the super guarantee nor the higher rate we have today.

The growth in the super system has clearly been one of the major developments in the Australian financial landscape in the past 20 years with it now being the second largest financial asset in average Australian households and the system growing into a savings pool of more than $2 trillion.

Our 40-year-old in 1996 is now turning 60 in 2016 and with retirement firmly in sight, Rice Warner project their super balance at retirement (assuming compulsory Superannuation Guarantee only contributions, average wages and a 7.5% gross return on investments) to be $217,000 in today’s dollars. That is projected to last until they are 74-years-old.

For the person turning 20 in 1996, and effectively just starting out in their working life, who is now 40 in 2016, the projected retirement balance is $395,000 when they reach retirement age. This money is expected to last until they are 83-years-old.

For the baby in our investor trio who is now 20, the projected super account balance accumulated during their working life is $456,000 – more than double what the 40-year-old is likely to get. It should last until they are 87.


Source: Rice Warner. Assumes default super with no additional concessional contributions.

Based on the ASFA comfortable retirement standard, the baby of 1996 could reasonably expect her super to last 13 years longer than their older baby boomer counterpart.

Higher contribution rates and a long-time period to allow compounding to work is driving these outcomes but it is interesting to reflect that even after more than 20 years, our super system is not yet at maturity. The challenge remains for those in the older age bracket to be able to contribute enough to fund their retirement lifestyle.

 

Robin Bowerman is Principal, Market Strategy and Communications at Vanguard Australia. This article is general information and does not consider the circumstances of any individual.

 

RELATED ARTICLES

Garry Weaven on 5 areas of super investment

banner

Most viewed in recent weeks

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Latest Updates

Investment strategies

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

Shares

Why the ASX needs dual-class shares

The ASX is exploring the introduction of dual class share structures for listed companies. Opposition is building to the plan but the ASX should ignore the naysayers and bring Australia into line with its global peers.

The state of women's wealth in Australia

New research shows the average Australian woman has $428,000 in net wealth, 40% less than the average man. This takes a deep dive into what the gender wealth gap looks like across different life stages.

Investing

The two most dangerous words in investing

Market extremes are where the biggest investment risks and opportunities lie. While events like this are usually only obvious in hindsight, learning to watch out for these two words can alert you to them in real time.

Shares

Investing in the backbone of the digital age

Semiconductors are used to make microchips and are essential to a vast range of technology and devices. This looks at what’s driving demand for chips, how the industry is evolving, and favoured stocks to play the theme.

Gold

Why gold’s record highs in 2025 differ from prior peaks

Gold prices hit new recent highs, driven by a stronger euro, tariff concerns, and steady ETF buying – all while the precious metal’s fundamental backdrop remains solid amid a shifting global economic landscape.

Now might be the best time to switch out of bank hybrids

In this interview, Schroders' Helen Mason discusses investing in corporate and financial credit securities, market impacts of tariffs, opportunities for cash investments, and views on tier two and hybrid bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.