Mixing It Up

Hi Scott,

Mate, what percentage of an investment portfolio should be Aussie shares compared to international shares? Considering Aussie shares provide dividends more than international shares (which are more growth oriented), I am not sure what mix I should have. What is your rule of thumb here? (Love your work -- keep it up!)

Cheers,

Arthur

Hi Arthur,

Very good question.When it comes to international markets, Australia is like a chihuahua at a dog show -- we represent only around 2 per cent of the world market. (Though we do have a big bark for a lapdog-sized market.)

Over the last century Australia has had the best performing stock market in the world. If you look back over 40 years, we’ve achieved roughly the same 12 per cent per annum returns as the rottweiler of the financial pound, the US. (International shares which include other countries have returned slightly less over the same period.)

It’s been a remarkable run; $10,000 invested 40 years ago would have compounded into $900,000 today -- even more remarkable considering the backdrop of the dot.com bubble, the Asian debt crisis, the GFC, a couple of wars in the Middle East … and Pauline Hanson.

You’ll generally get better tax-effective income through Aussie shares (thanks to generous franking credits), but that’s not a reason to avoid going international. To diversify your holding it makes total sense. For a passive, very long-term approach, consider a split along the lines of 60 per cent Aussie, 40 per cent international.

Scott