Here’s my updated annual Real (inflation-adjusted) return pyramid for the Australian share market to go with the Nominal return pyramid in my last story. Real returns are even more important than Nominal returns because we need our wealth and withdrawals for living expenses to keep growing ahead of inflation.
Key points:
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- As was the case with Nominal returns, 2025 was another good year of spot-on historical average Real returns from the broad Australian share market, despite endless scare mongering from media and so-called ‘experts’.
- That makes it three years in a row of historical average Real returns – the longest period of consistent historical average real returns. So much for all the media nonsense about ‘volatility’.
- The broad Australian share market has been one of the best inflation hedges.
- Overall, shares have beaten inflation by an average of 6.5% pa since 1900, 6.8% pa since 1980, and 5.3% pa since 2000 (plus franking credits).
- This is why diversified Aussie shares form the core of our long-term CPI+ retirement portfolios.
- Eg the standard ‘4% rule’ which requires real returns of at least CPI+4% after fees and taxes, so withdrawals for living expenses can keep rising for inflation, and maintains the real value of capital after withdrawals, to minimise the chance of running out of money.
- Look out for my next story which does the same for US shares.
This article on Real total returns from the Australian share market is a follow-up to my last story on Nominal total returns:-
In today’s chart, each box represents a calendar year since 1900, with the years organised into 5% return bands based on real total returns (ie capital gains plus dividends, adjusted for inflation) from the broad Australian share market. The worst years are at the left, through to the best years to the right.
A quick comparison of the above chart of real returns and the equivalent chart of nominal returns in my previous story shows that the real returns for most years are shifted a little to the left on the scale of return bands (ie real returns are lower than nominal returns in most years, because inflation was a detractor from returns in most years).
However, there were some years of negative 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.
Since 1900, the geometric (compound) average Real total return from the market has been 6.5% per year above, compared to 10.4% geometric (compound) average Nominal returns, because inflation averaged 3.7% per year over the period.
The worst year for real returns was still 2008, in the GFC (as it was for Nominal returns). The last bad year was 2022 when shares were hit hard by rate hikes and inflation was 7.9%.
The best single real return year was also still 1983 (1982-3 recession), despite inflation running at 10.1% that year.
Unprecedented period of consistently good/boring/average real returns
As was the case with Nominal returns in the last story, the past three years (2023,2024,2025) have been the most consistently boring period for overall Australian share market returns in history, with all three years posting very close to historical average real returns after inflation. This is the only consecutive three-year period in the ‘average’ 5%-10% real return column on the chart.
No other historical period comes close in terms of consistency of boring/average real returns from the Australian share market.
Note that for this purpose I exclude franking credits, which boosted returns by +1.2% in 2025 for tax-free Aussie investors. (For data definitions and sources, see notes at end of this report.)
Good CPI+ returns
This is a good reminder that the broad Australian share market has been one of the best hedges against inflation.
Even after inflation,
- 72% of all years had positive real returns – ie shares beat inflation.
- 61% of years were more than 5% above inflation, ie better than CPI+5%.
- Overall, shares have beaten inflation by an average of 6.5% pa since 1900, 6.8% pa since 1980, and 5.3% pa since 2000.
Long-term retirement funds
This achievement of at least CPI+5% over very long periods is the reason that diversified/broad shares form the core of long-term retirement funds.
For example - the standard ‘4% rule’ retirement benchmark (or ‘25 times multiple rule’) – where the initial withdrawal at retirement is set at 4% of fund balance, then rising for inflation each year - requires the fund to be earning at least an average of CPI+4% each year (after fees and taxes) in order for the fund balance after withdrawals to keep growing ahead of inflation, to protect future withdrawals and living standards), to minimise the chance of running out of money.
This can minimise ‘longevity’ risk and inflation risk, while ‘market risk’ (‘sequencing risk’) can be minimised by maintaining a cash reserve to avoid selling at low prices in sell-offs. Stock-specific risk is minimised by using broad market-wide funds/ETFs.
Diversification
This article refers to Australian shares, but diversification into international shares also requires at least CPI+4% returns (after fees and taxes) for the overall portfolio. I cover international shares in other articles.
Diversified long-term portfolios also contain other types of so-called ‘defensive’ assets like cash, bonds, and maybe even ‘private credit’ (the current fad de jour), but these don’t have the tax advantages of shares, and they offer no growth or inflation protection.
‘Till next time. . . . safe investing, and stay healthy!
Further reading –
For the equivalent story relating to Nominal total returns from the Aussie share market since 1900, see -
For my 2025 year-end wrap-up of local & global markets for Aussie investors:
For asset class returns for the past 35 years including 2025, see –
For an update on my current BIG challenge -
A note on Data sources:
- From 1980: ASX All Ords Accumulation index
- 1958-1979: Sydney All Ordinaries
- 1936-1957: Sydney 34 Ordinaries
- Before 1936: Sydney Commercial & Industrial Index
- Before 1979, total return series use the Adjusted Lamberton dividend method.