The best performing assets over the last 10 years

Ray White chief economist Nerida Conisbee recently analysed investments to report on the best performing assets over the last 10 years and Bitcoin came out well in front.

Nerida Conisbee is the economist for property group Ray White and I’ve known her for years… I love the way she thinks.

So I was interested in her latest research project of identifying the best performing investment over the last 10 years.

Working out the best performer by asset class is difficult for a number of reasons. When you buy it and when you sell it is critical. Entry and exit costs differ according to what you’re buying.

For the sharemarket Nerida used both the ASX and the NASDAQ indexes, but naturally different shares yield different returns. Similarly, you can’t actually buy a “Sydney median-priced house”, and house prices vary a lot across cities, but also within suburbs.

So she admits this analysis doesn’t provide a perfect comparison, but does give an insight into what has performed well over the past decade and what hasn’t.

Bitcoin the star performer

The star performer over the past decade has been Bitcoin, rising by close to 160,000 per cent. Generally seen as one of the most high-risk investments, it’s certainly paid off for anyone that invested a decade ago. At the opposite end of the spectrum are term deposits and Treasury bonds.

As opposed to Bitcoin, these are considered the most risk-free investments and their returns have reflected this. A term deposit would have only given you 12.7 per cent return over 10 years.

How did property fare over this time period?

Sydney house prices have seen the most growth, up 237 per cent. They were narrowly beaten by the NASDAQ index, a selection of US technology stocks. Hobart was also a top performer, followed by Canberra.

In fact, according to Nerida, most Australian capital cities did far better than the Australian sharemarket. The ASX beat only Darwin and Perth over this time period.

As Nerida points out, tax systems also favour property investment and being an owner-occupier. Once purchased, the family home is a tax-free asset in most of Australia (Canberra is switching from stamp duty to an annual land tax system). Buying a family home, instead of renting and investing in other asset classes, can mean much less tax is paid over time.

Property investing’s role in supply of rental properties also means some tax incentives are in place. In order to ensure a steady supply of rental housing, negative gearing and capital gains tax concessions are in place for those that buy rental properties.

And the use of debt has made property the best performer for most people.

Debt leveraging results in better returns

While most people haven’t done well out of Bitcoin, a lot have done well out of property. One of the reasons is the use of leverage. Simply, using debt to buy a property has resulted in much better returns. When investing in other asset classes, debt is used less often.

Even small increases in the value of your home can lead to a much bigger financial gain than putting a deposit into alternative investments and then renting.

Nerida uses a very simple example of an investor (John) with $100,000 saved. John is considering whether to use his savings to get a mortgage and buy a $1 million home or put his deposit into a share portfolio instead. Both shares and housing are seeing the exact same capital growth of five per cent per annum. If John doesn’t buy a home, he will pay rent instead of paying off a mortgage.

After just one year, you already have a vastly different scenario. If John bought the house, the value of his home has increased by $50,000. Alternatively, the value of his shares would have increased by $5,000… 90 per cent less than the capital gain of the house.