Stock market index returns with dividend reinvestment, provide the best long-term returns and have outperformed every active managed fund, industry super fund and retail fund in Australia since 1992, according to ShareWealth Systems.
Founder of ShareWealth Systems, Gary Stone, said he compared every fund to the Australian Securities Exchange (ASX) accumulation indices since July 1992, when superannuation contributions were mandated in Australia and found that the stock market accumulation index provided higher, uniform and transparent returns.
The lowest-effort, near passive method of accessing such returns could be done through index exchange traded funds (ETF), Stone said.
“Investing directly via index ETFs massively reduces annual management fess compared to industry and retail super funds. In fact [ETF fees] are three to seven times less than industry and super funds [fees] and 10 to five times less than retail super fund fees.”
Over 40 years, investors could be saving over $500,000 in management fees if they invested in index ETFs instead of active managed funds, Stone said.
Stock market index returns that had dividend reinvestment plans (DRP) not only provided transparent returns but had relatively tiny upfront and ongoing costs, he said. DRPs offered the ability to purchase more index units oncer a quarter with investors’ superannuation contributions.
“There are few managed funds, typically the small to mid-cap boutique funds, which do outperform the accumulation index. However, the everyday investors picking theses in advance, is a very low probability too.”
Stone’s findings were published in his book “Blueprint to Wealth: Financial Freedom in 15 minutes a week”.
