Long-term comparative performance of Australian asset classes

Using an extensive historical dataset spanning 150 years, we provide a comparison of the long-term performance of the Australian equity, property, fixed interest and money market asset classes. We find the relative asset class performance to be quite disparate, with weak correlations between the asset classes, indicative of strong diversification benefits for investors with long investment horizons, such as households and pension funds. Our sub-sample analysis shows that the specific findings are dependent on the business cycle, with property proving to be the best hedge against inflation. The analysis also reveals a consistent decline in risk-adjusted performance across risky assets over time which highlights how changes in investment environments can impact different generations. The latter observations have implications for the current debate concerning compulsory superannuation, housing affordability and intergenerational wealth transfers.