Gains still to be had in stockmarket for mum and dad investors: report

Despite the uncertainty and upheaval of the past 13 years, mum and dad stockmarket investors saw their holdings gain an average of 6.1% per year, according to the CommSec Mums and Dads index.

The rate is well above returns on cash holdings, but below the growth in the All Ordinaries index for the same period. And further returns of 6% this year are possible, the report says.

“The difference between the Mums and Dads Index and the All Ordinaries is effectively resource stocks,” CommSec chief economist Craig James told SmartCompany.

Investors with exposure to resource stocks would potentially have achieved an 8.6% compound interest rate, but James thinks it likely that cautious investors would have missed a lot of those opportunities.

James said while he understands that pessimistic investors could shun the sharemarket, CommSec’s view was that it was likely to again achieve 6% returns over the next year.

“At the end of the day, returns on the sharemarket depend on growth in the economy,” he says.

“We take the view that the Australian economy will continue to grow 3-3.5% in the next year, with 2-2.5% inflation, so company earnings should rise somewhere in the order of 6%.”

James says this is likely to be compounded by many companies, particularly in the resource sector, achieving their growth outside Australia.
“Shares have been out of favour, and have become quite cheap over the last year or so because of the [troubles in the] European sharemarket.”

The index, which was developed to cover the stocks that usually gave investors their start in the stockmarket, contains a lesson in diversification.

In 13 years, a portfolio only just Telstra and AMP held over that period would have decreased in value, while a portfolio with a $100 investment in both Woolworths and the Commonwealth Bank would have grown to $1100.

In May, an ASX study found 43% of Australian adults owned shares, either directly or indirectly, accounting for one of the leading rates of share ownership worldwide.

Nearly one in five of those not active in the sharemarket wanted to enter it at some stage.