How $10,000 performed across eight asset classes in 2024

Another year of varied returns demonstrates the importance of diversification.

Global share markets surged into record territory during 2024, delivering double-digit returns to many investors.

Indeed, investors using broad-based exchange traded funds (ETFs) to cover the largest companies on U.S. and international share markets would have ended the year with significant gains.

By contrast, total gains from the Australian share market were more subdued. However, they were still above 10% for the year and well ahead of the returns from many other asset classes.

The table below draws on data from the Vanguard Digital Index Chart to show what a $10,000 investment into eight major asset classes at the start of 2024 would have grown to by the end of 2024.

Source: Vanguard.
Note:Returns data measured from 1 January 2024 to 31 December 2024.

Past performance is not a reliable indicator of future performance.

The projections above indicate how much could have been accumulated if it were possible to invest directly into the relevant indices. They assume the $10,000 is fully invested (and remains fully invested) in the relevant index for the asset class and that all income is reinvested. They do not make any allowance for fees, costs or taxes. All results are displayed in nominal dollars, i.e. inflation has not been taken into account.

An actual investment would be subject to acquisition costs, fees and taxes.

The figures are based on assumptions and are general illustrations only.

A diversified portfolio allows you to adapt to changing market conditions and economic environments.

What’s obvious from the data is that there was a massive gap between the return from the best-performing asset class (U.S. shares) and the worst-performing (international bonds).

Yet, as is so often the case, last year’s best-performing asset class may not be the best performer in the following year. And that highlights the importance of being diversified across multiple asset classes as a key strategy for building a robust and resilient investment portfolio.

Seven key benefits of diversification

1. Risk reduction

One of the primary advantages of diversification is the reduction of risk. By spreading your investments across different asset classes, you minimise the impact of a single asset’s poor performance. For example, while U.S. shares saw a solid return of 38.8%, international bonds only returned 1.8%. If you had invested all your money in international bonds, your returns would have been much lower. Diversification ensures that even if one asset class underperforms, stronger performers can help lift your overall investment return.

2. Stability and consistency

Diversification helps to smooth out the volatility of the market. By investing in a mix of asset classes, you may achieve more stable and consistent returns over time. This is particularly important for long-term financial goals, such as retirement. For instance, while U.S. shares and international shares provided high returns, Australian listed property and Australian shares also contributed positively to the portfolio, offering a more balanced approach.

3. Opportunities for growth

Different asset classes can perform well at different times. By diversifying, you could increase your chances of capturing growth opportunities and ensures you are not missing out on potential gains from asset classes you have avoided.

4. Inflation protection

Some asset classes, such as real estate, can act as hedges against inflation. When the cost of living rises, these assets often increase in value, helping to preserve your purchasing power. Australian listed property, which can be seen as a proxy for real estate, provided a solid return of 18.5% in 2024.

5. Flexibility and adaptability

A diversified portfolio allows you to adapt to changing market conditions and economic environments. You can adjust your asset allocation based on your risk tolerance and financial goals, ensuring that your investments remain aligned with your needs. For example, if you are nearing retirement, you might shift more of your portfolio into bonds and cash to reduce volatility risk.

6. Enhanced return potential

While diversification doesn’t guarantee higher returns, it can potentially enhance your overall return by taking advantage of the strengths of different asset classes. In 2024, a diversified portfolio that included U.S. shares, international shares, and Australian listed property would have seen significant growth, outperforming a portfolio concentrated in a single asset class.

7. Emotional comfort

Knowing that your investments are spread across various asset classes can help you avoid the stress and anxiety that come with putting all your eggs in one basket, making it easier to stick to your long-term investment strategy. For instance, the more consistent returns from cash and Australian bonds may provide a sense of security when more volatile assets such as shares experience volatility.

Conclusion

The data from 2024 clearly demonstrates the power of diversification.

By spreading your investments across different asset classes, you can reduce risk, achieve more stable returns over the long term, and potentially increase your chances of capturing growth opportunities.

Whether you are a seasoned investor or just starting out, diversification is a strategy that can help you build a resilient and balanced portfolio, ultimately contributing to your financial success and peace of mind.

Important information

Diversification is no guarantee of investment success or loss avoidance. A diversified portfolio could produce negative returns if markets fall. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your portfolio. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income