House prices in Brisbane increase 408%

This is what an article in the Courier Mail (paywall) announced today…  Over the last 30 years, since late 1990 median house prices in Brisbane have gone from $106,000 to $539,000.  Is this good financial advice?

Is that a good return?

It sounds like a good return… 408%… But what does that work out to be each year, and how does that compare against your superannuation, shares or other investments. 

How would you know?

Almost all other investments are worked out on an annual basis.  So what is 408% over 30 years on an annual basis?

If you work it out using the Compound Annual Growth Rate (remember Einstein and the 8th wonder of the world?), then the retun is 5.57% per annum.  Now you can compare it to your super fund or other investment (if they have been running for 30 years).

What have other investments returned?

When I worked out what this return was, my first thought was what had other investments returned?  It is not always easy to find out.  The S&P ASX 200 index hasn’t been around for 30 years.  So the closest measurement we have for Australian shares is the All Ordinaries Index. 

At the end of November 1990 the All Ordinaries Index was 1319.70 points and at the end of November 2020 it was 6742.10 points.

If I was writing a newspaper, I would call that a 410% return over 30 years.  More correctly it is a 5.59% per annum return

In the same time frame Australia’s Gross Domestic Product (the dollar value of what the country produces) rose by 4.22% each year.

CPI increased by 2.31% per year from December 1990 to December 2020.

Why does it matter?

Newspapers are in the business of selling newspapers, and as such 408% sounds better than 5.57%.  Will property continue at this rate?  Will shares?  No one has a crystal ball, and many assets have had an economic tailwind over the last 30 years. 

The more important question is; what is right for you?

Financial Advice – Brisbane

In general, property investments are neither right nor wrong, neither are shares, cash, bonds or a range of other investments.  The question that any good Financial Adviser should ask is, what is right for you?  and why?

How long before you want the money back?

What is your tax rate?

How should your investments change in retirement?

What investments do you understand, and are you interested in learning about others?

Can you handle visibly seeing your investment value move up and down?

If you are looking for Financial Advice, please get in touch with John Forwood, the director of Forwood Planning.

Source: www.abs.gov.au, au.finance.yahoo.com, couriermail.com.au