Markets are funny thing – and as we move into the latter part of 2013, the average returns for all the big asset classes are set to be low for decades to come. But there are some ways in which you can ensure that you can be above average.

Taking the London Business School’s (LBS) forecasts for real returns into account, the real returns for the big asset classes over the next 30 years are somewhat bearish. Based on their forecasts, Term deposits will  actually lose you 0.5 percent a year out to 2043, once inflation is taken into account. Government bonds will make you a zero return in real terms according to the LBS analysis. The LBS team is also not as enthusiastic about shares either, and specifically Australian shares. But the analysis referred to the return of the benchmarks, and there are still plenty of one-off opportunities with promising returns throughout the market.

One factor that is encouraging is that Australian shares are tipped to do better than the global average, but not obtaining fantastic real returns over the long term. So what is an investor to do…

  • Invest in frontier markets with above 10% real returns

If you are looking to achieve above inflation returns, you are going to have to turn to markets such as Nigeria and Sri Lanka. Individually these frontier markets may seem flaky at best, but taken together they are relatively unvolatile, because they are unrelated. The frontier markets are cheap compared with their developed peers, with most of them trading at “high single digit” price to earnings ratios.

  • Its not all about asset allocation

It is important to remember that asset allocation is not the only way to maximise your returns. You need to set your long term strategy, and make sure you maximise your tax benefits and have the right pension strategy. These beenfits can have a much higher impact on your returns than asset allocation can.


So as we continue in a world where low returns are the norm, make sure you take some steps to ensure that you maximise your real returns over the longer term.

Categories: Investments & Trading

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