Wednesday, April 24, 2024

Australian Share Market Annual Returns Pyramid

12 Jan 2024 3 month(s) ago 2 Comments

2023 was a good year for the Australian share market, but where does it sit in historical terms?

The past five years were actually rather boring and ho-hum for the share market – despite a host of extreme events like the Covid lockdowns, steep recessions, inflation spikes, aggressive rate hikes, wars, rising military tensions, bank collapses, etc.

Here are our Annual Return Pyramids for the Australian share market.

This first chart shows total returns (ie capital gains plus dividends) from the broad Australian share market per calendar year since 1900. The returns are organised in 5% bands – from the worst years at the left through to the best years to the right.


Although the market has returned an average of more than 11% per year overall, the returns each year have ranged from very deep negative years to very large positive years. 

The worst year was 2008, with a return of minus 40%, in the depths of the 2008-9 ‘Global Financial Crisis’ triggered by the US sub-prime collapse. The 2008 negative year came after five consecutive years of strong gains in the 2003-7 China/credit boom.

The best single year was 1983, with a return of +67% in the tremendous rebound out of the 1981-3 recession, which had caused negative years in 1981 and 1982.

Very high positive returns and very low negative returns are relatively rare.

Most of the years are bunched in the ‘boring’ middle third of the chart. 39% of all years were between 10% to 20% range.

One thing that stands out is that the great majority of years have been positive for the overall share market.

  • 78% of years were positive
  • 70% of years were above 5%
  • 59% of years were above 10%
  • 40% of years were above 15%
  • 21% of years were above 20%
  • Only 22% of years were negative, 15% were worse than -5%, and only 8% of years were worse than -10%.

Past five years

The chart highlights returns for the past five calendar years.      

  • Four out of the past five years were positive, including 2020 with the Covid lockdown recessions
  • 2022 was the only negative year in the past five years, and it was very mild at just -3%.
  • Three out of the past five years were well above average

‘Volatility!’ – what Volatility?

The other notable stand-out from this chart is the fact that these past five years fall into the ‘boring’, ho-hum middle third of the chart, but look what happened during those five years: 

  • Governments locked entire populations in their homes for months on end for the first time in history
  • the sharpest and deepest economic recessions since the 1930s Great Depression
  • soaring inflation everywhere
  • savage interest rate hikes
  • extraordinary new monetary policies and policy errors
  • the first major war in Europe since WW2
  • new wars and flare-ups in the Middle East
  • a new ‘cold’ war between China and the US
  • trade wars, tech wars
  • commodities booms and busts
  • tech booms and busts
  • bank collapses in the US and Europe
  • our main export buyer, China, ground to a halt with the collapse of its main driver of growth - construction


Despite all of this so-called ‘volatility’ and ‘uncertainty’, the local share market sailed through it, staying in the middle section of the chart, avoiding extreme highs and lows on the left and right of the chart.

Real returns after inflation

The above section relates to ‘total returns’ that include price changes plus dividends, but they do not take into account the wealth-destroying effects of inflation. We adjust returns for inflation in the next chart.

Like the previous chart, the returns are organised in bands – from worst years at the left through to the best years to the right.

A quick comparison of the two charts shows that the real returns for most years are shifted a little to the left on the scale of return bands (ie lower real returns) compared to the previous ‘nominal’ return chart.

However, there were some years with negative CPI inflation, so ‘real’ returns were higher than ‘nominal’ returns. The years of negative inflation were 1900, 1903, 1904, 1921, 1922, 1924, 1927, 1930, 1931, 1932, 1933, 1944, 1962, and 1997.

Real total returns from the market averaged nearly 8% per year after inflation, compared to more than 11% per year before inflation, because inflation averaged 3.7% per year over the period.  Like the previous chart, real returns each year have ranged from very deep negative years to very large positive years.

The worst year for real returns was still 2008, in the GFC.  

The best single year after inflation was also still 1983, despite inflation was running at 10.1% for that year.

Good CPI+ returns

Even after the effects of inflation, the majority (72%) of all years were positive for shares, and 60% of years were better than CPI+5%, ie more than 5% above inflation.

This is a great outcome for investors, and a good reminder that broad share markets are one of the best hedges against inflation.

Thank you for your time – please send me feedback and/or ideas for future editions!

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Ashley Owen


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Director/Principal at Owen Analytics Pty Ltd

Expertise in Investment Markets Research & Analytics, Portfolio Construction & Management, Corporate Finance, Venture Capital, M&A, and IPOs.

Co-founder & Regular Contributor at Firstlinks

Co-founder of Australia's leading investment and superannuation newsletter and website for industry professionals and investors.

Director at Third Link Investment Managers Pty Ltd

Leads an Australian equities fund-of-funds that donates all management fees to Australian charities.

Chief Investment Officer at Stanford Brown

Responsible for managing over $2 billion AUM in multi-asset class portfolios and discretionary accounts at a privately-owned advice practice.

Director & Joint CEO at Philo Capital Advisers Pty Ltd

Specialises in investment portfolio construction & management, multi-asset class asset allocation, and global macro strategies.


Existing Comments

first of all - thanks for your comments!

1) on inflation - I grew up with double digit inflation (1970s) - so the current/recent inflation is hardly serious. But it will become serious if it raises people's
inflation expectations in general - eg union wage demands, and/or changes people's buying behaviour

2) on your idea that 'Governments and Reserve Banks are more experienced at dealing with the likes of Inflation' - unfortunately the current batch of jokers have no idea - as they are too young to remember any inflation in their careers. Reserve bank is clueless in dealing with real inflation.

3) on unemployment - yes, even the ABS advises not to make any sense of the official unemployment numbers. But the problem is that the process was designed when people had one full-time job and that was it. Now we have casual, part time, gig-economy jobs. But, ignoring the detail, the fact is that is that most people with any sort of skills can find work everywhere - which confirms the official unemployment rate as very low. This is inflationary.

4) on gold prices - I generally use the London PM fix as the benchmark for gold prices - since so many things, including gold ETFs, use that as their benchmark. I like gold and have quite a bit of it, but that's another story for another day!

January 17, 2024

Many thanks for your analysis and comments, I look forward to them as they seem to be predominantly factually based and largely without all the typical "Media type Hype".
I despair with a lot of the media and economists they seem to source these days who seem so removed at times from practicality.
Curious about a couple of things.
a) Your heading "Volatility! -What Volatility", there is a Bullet Point .Soaring Inflation Everywhere.
My view is the "Inflation" story here, has been a bit oversold. Given the circumstances and inflation rates we have seen in the past, I'm not sure these sort of comments accurately reflect current reality. Don't forget, as an investor, inflation usually increases returns and these days as a result of past experience, Governments and Reserve Banks are more experienced at dealing with the likes of Inflation, not that I'm that excited about the decision to largely just leave it to raising interest rates.
There is also the issue with how corrupt the inflation statistic has become, it is probably necessary to try a generate your own real interest rate based on available data because the rate quoted is not reality. Likewise the unemployment rate, the quoted rate is so removed from reality it is meaningless.

The other curiosity I have relates to the use of the Futures Exchange quotes for the price of Gold ?
I have traded the futures exchange since 1979 and would not promote it as an actual physical price. From the way I see it, it is largely a speculative price. Whilst the exchange can be used for physical exchange, it generally isn't the place you go to physically buy gold and the places that physically trade gold, like the Perth Mint, don't quote gold prices based on the futures exchange.
To my way of thinking, quoting the futures exchange price as the price of gold borders on misrepresentation ?

Old Mate
January 14, 2024

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The information contained in this document relates to historical, factual events and returns, and contains general commentary and observations about financial markets, asset classes, and asset allocation. This document, or any part thereof, does not, and is not intended to, constitute investment advice, or financial advice, or financial product advice, in any jurisdiction in which it is published, re-published or read. It does not recommend, encourage, or influence readers to buy, hold, sell, or deal in any financial product or security. Where securities of financial products are mentioned, it is purely for the purposes of illustration, context, and/or education, and not intended to influence anyone to buy, hold, sell, or deal in it. The information is current when written. All reasonable measures are taken to ensure its accuracy at the time of publication, but the author accepts no responsibility or liability for any errors or omissions. This document is only provided to, and intended for, holders of Australian Financial Services Licences. It should not be used or relied upon by any person or entity other than a duly licenced AFSL holder, or authorised representative thereof. The author receives no benefit, financial or otherwise, from any product provider, or product issuer, or any other firm involved directly or indirectly in the provision or services in or to financial markets or industries, whether mentioned in the report or not. Any opinions expressed by the author are his alone, and are intended for the purposes of education.