Annual Report 2006: Part III

The following table compares my rates of return on investment to the MSCI World Index and the S&P 500 Total Return Index:



Both those indices include reinvested dividends and in the former case tax credits too. The MSCI World Index covers all countries indexed by MSCI is expressed in US Dollars. I consider the MSCI index the benchmark I measure my performance against. This post has a chart comparing my USD Total Asset Return to the MSCI World Index.

Anyway, getting back to the table - it is divided into four sections:

The first two columns of figures only cover non-retirement assets. I give the return in Australian Dollar and US Dollar terms. The latter look a lot better due to the rise in the Australian dollar from 2001. The returns are the total gain over the relevant period - not annualized rates of return.

The next two columns also include retirement accounts. In the long-term these returns are a lot better with a 123% gain over ten years but are poorer for 2006 itself. Recently, my retirement accounts have been invested more conservatively than non-retirement accounts. In earlier years this wasn't the case and I chose some very successful funds including Colonial First State's Geared Share Fund.

Columns 5 and 6 present the same data for the two stock indices. Over 1, 2, 3, and 5 years the MSCI has outperformed the S&P 500. I have just about matched the S&P 500 over 10 years and outperformed it on all the shorter horizons. I outperformed the MSCI over 3, 5, and 10 years but not over 1 or 2 years. My 2005 rate of return was particularly low.

The final three columns give the same information in terms of annual rates of return. This shows that my rates of return have been extremely strong over 3 and 5 years. The S&P 500 performed poorly over the 5 year horizon. The fall in the US Dollar is one reason that both I and the MSCI outperformed the S&P 500 - foreign stock markets have also performed better in terms of local currencies during this period. So are my returns just luck? I could have moved all my non-retirement assets to the US in 2002 when I moved here from Australia. I deliberately chose not to do so. I also chose to invest most of my Australian retirement account in Australian shares rather than other alternatives. These were deliberate choices based on my view of the value of the currencies. I now see the Euro, Pound, and Aussie Dollar as fully valued and so will focus on accumulating US Dollars. Only time will tell if I am right.