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Extraordinary All Ordinaries

The long time barometer of the Australian stock market, the All Ordinaries Price index, hit 6000 yesterday, up 1000 points in just 5 months. Whilst the media is always fascinated when these milestones are reached, it's really the compound rate of growth per annum which is most relevant to investors. A 1000 point move from 5000 to 6000 over 5 months is a compound rate of growth of 56%pa - way out of kilter with longer term returns!

Over the total history which FinDem has for Australian stock prices dating back to 1875, the average rate of growth in prices over 132 years is 5.5%pa. So if you had invested in the index last September, sold out yesterday and put it in a safety deposit box at no interest for the next 8 years, your average return over 8 years 5 months would still be the long term average of 5.5%pa. We have added Miscellaneous Charts in Research Centre for the All Ords and the US index the S&P500 (Dow prior to 1950) to show what past stock market average returns to the end of last week have been over 5, 10, 25, 50 and 75 years. Whilst both US and Australian index returns are similar for 75 years (7.4%pa and 7.2%pa), over the past 5 years the US market is up 6.2%pa while the Australian market is up 12.0%pa (both before adding dividends). It's pretty clear the Australian market has been in boom times in recent years.

Posted Saturday, 24 February 2007

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