From 1 November 1980 to 31 October 2009, a total of 29 years, an investment in bank bills would have yielded a total return of 1,257% which is an annual return of 9.41%…many banks provide this type of return for their customers and as we have found out in the last year or so, the Australian government is happy to protect your deposits when times are tough so the risk is very low and bank bill type returns are achievable for all of us.
Compare this to the return of the All Ordinaries Index….which is the best proxy of the broader market as it encapsulates on average around 500 of the top Australian companies…which returned 1,996%…better than bank bills…however…the annualised return is only 11.06%. This annual return represents a risk premium of only 1.65%pa.
For the average punter, access to managed funds is typically done via master trusts or wrap platforms, and guess what….their total annual product fees (which include administration, fund manager, and advice fees) are typically around 1.9%pa for an investment in an Australian Shares fund. Therefore, if you made an investment into the Australian sharemarket at the start of 1980, (which opened with around a 50% first 12 months return), you would have underperformed bank bills by paying the fees that current platforms charge adn most importantly with more risk!
No wonder the Cooper review and government will insist on fees being less than 1%pa.