Why invest in shares?

This presentation is given by a representative of Colonial First State Investments Limited AFS License 232468 (Colonial First State). The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on 13 13 36.

All products are issued by Colonial First State Investments Limited ABN 98 002 348 352. Prospectuses or Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant prospectus or PDS should be considered before making a decision about any product.

This presentation does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.

The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation.  

Disclaimer

Investing in the previous year’s best performing asset class

31-Dec-82 International Shares $10,000

31-Dec-83 Australian Shares $13,285

31-Dec-84 International Shares $12,985

31-Dec-85 International Shares $22,100

31-Dec-86 Australian Shares $32,184

31-Dec-87 Australian Fixed Interest $29,655

31-Dec-88 Australian Shares $32,439

31-Dec-89 International Shares $38,084

31-Dec-90 Australian Fixed Interest $32,333

31-Dec-91 Australian Shares $40,335

31-Dec-92 Australian Fixed Interest $39,403

31-Dec-93 Australian Shares $45,834

31-Dec-94 Australian Cash $48,291

31-Dec-95 International Shares $58,041

31-Dec-96 Australian Shares $61,684

31-Dec-97 International Shares $69,227

31-Dec-98 International Shares $72,786

31-Dec-99 International Shares $85,237

31-Dec-00 Australian Listed Property $87,150

31-Dec-01 Australian Listed Property $99,873

31-Dec-02 Australian Listed Property $111,614

31-Dec-03 Australian Listed Property $121,440

Cumulative returns for each year to 31 December 2002. Data based on index returns, all distributions reinvested. Source: UBS Warburg Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1989), UBS Warburg Australian Composite Bond Index 0+ Years (CBBI All Series All Mats Accumulation pre Oct 1989), S&P/ASX 200 Property Accumulation Index (ASX Property Trusts Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Net Index ($A). IRESS, RIMES

Asset Class Value

Investing in the previous year’s worst performing asset class

31-Dec-82 Australian Shares $10,000

31-Dec-83 Australian Cash $16,680

31-Dec-84 Australian Shares $18,730

31-Dec-85 Australian Listed Property $26,982

31-Dec-86 Australian Cash $36,540

31-Dec-87 Australian Shares $41,538

31-Dec-88 International Shares $48,965

31-Dec-89 Australian Listed Property $61,711

31-Dec-90 Australian Shares $67,080

31-Dec-91 Australian Cash $90,048

31-Dec-92 Australian Shares $96,279

31-Dec-93 Australian Cash $139,951

31-Dec-94 Australian Shares $147,453

31-Dec-95 Australian Cash $177,223

31-Dec-96 International Shares $190,639

31-Dec-97 Australian Cash $269,030

31-Dec-98 Australian Cash $282,858

31-Dec-99 Australian Listed Property $297,029

31-Dec-00 International Shares $350,049

31-Dec-01 International Shares $316,024

31-Dec-02 International Shares $230,160

31-Dec-02 International Shares $228,960

Cumulative returns for each year to 31 December 2002. Data based on index returns, all distributions reinvested. Source: UBS Warburg Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1989), UBS Warburg Australian Composite Bond Index 0+ Years (CBBI All Series All Mats Accumulation pre Oct 1989), S&P/ASX 200 Property Accumulation Index (ASX Property Trusts Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Net Index ($A). IRESS, RIMES

Asset Class Value

What are the two main investment risks ?

1. Loss of capital

2. Not meeting your investment objectives

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Dec82

Dec83

Dec84

Dec85

Dec86

Dec87

Dec88

Dec89

Dec90

Dec91

Dec92

Dec93

Dec94

Dec95

Dec96

Dec97

Dec98

Dec99

Dec00

Dec01

Dec02

Dec03

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000All Industrials Index - Dividends (LHS)

Term Deposits - Interest (LHS)

Term Deposits - Value (RHS)

All Industrials Index - Value (RHS)

Income Capital Value

Source: IRESS, S&P ASX All Industrials used prior to July 2002. S&P ASX 300 Industrials used after July 2002. Reserve Bank of Australia, ‘Bank Deposits $5,000-$100,000 1 year rates’

Shares can provide capital growth & incomeReturn on investment of $100,000 in Shares vs Term Deposits

What has inflation done to $100,000?

0

20,000

40,000

60,000

80,000

100,000

120,000

'81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02

$

$38,925

$100,000

Source: IRESS. Data to 31st December 2003

Shares or cash?

-30%

-10%

10%

30%

50%

70%

90%

Dec

-81

Dec

-83

Dec

-85

Dec

-87

Dec

-89

Dec

-91

Dec

-93

Dec

-95

Dec

-97

Dec

-99

Dec

-01

Dec

-03

Australian sharesCashDiversified*

Retu

rn

Rolling one year returns

*35% Australian shares; 25% Global Shares; 10% Aust Property Securities; 25% Aust Fixed Interest; 5% Cash

Source: UBS Warburg Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1989), UBS Warburg Australian Composite Bond Index 0+ Years (CBBI All Series All Mats Accumulation pre Oct 1989), S&P/ASX 200 Property Accumulation Index (ASX Property Trusts Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Net Index ($A). IRESS/RIMES

Shares or cash?

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Dec

-85

Dec

-87

Dec

-89

Dec

-91

Dec

-93

Dec

-95

Dec

-97

Dec

-99

Dec

-01

Dec

-03

Australian sharesCashDiversified*

Rolling five year returns

Retu

rn

*35% Australian shares; 25% Global Shares; 10% Aust Property Securities; 25% Aust Fixed Interest; 5% Cash

Source: UBS Warburg Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1989), UBS Warburg Australian Composite Bond Index 0+ Years (CBBI All Series All Mats Accumulation pre Oct 1989), S&P/ASX 200 Property Accumulation Index (ASX Property Trusts Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Net Index ($A). IRESS/RIMES

Shares or cash?

4%

6%

8%

10%

12%

14%

16%

18%

20%

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Australian sharesCashDiversified*

Rolling ten year returns

Retu

rn

*35% Australian shares; 25% Global Shares; 10% Aust Property Securities; 25% Aust Fixed Interest; 5% Cash

Source: UBS Warburg Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1989), UBS Warburg Australian Composite Bond Index 0+ Years (CBBI All Series All Mats Accumulation pre Oct 1989), S&P/ASX 200 Property Accumulation Index (ASX Property Trusts Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Net Index ($A). IRESS/RIMES

Shares or cash?

9%

10%

11%

12%

13%

14%

15%

16%

Dec-

00

Mar-

01

Jun-0

1

Sep-0

1

Dec-

01

Mar-

02

Jun-0

2

Sep-0

2

Dec-

02

Mar-

03

Jun-0

3

Sep-0

3

Dec-

03

Mar-

04

Jun-0

4

Australian sharesCashDiversified*

Rolling twenty year returns

*35% Australian shares; 25% Global Shares; 10% Aust Property Securities; 25% Aust Fixed Interest; 5% Cash

Retu

rn

Source: UBS Warburg Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1989), UBS Warburg Australian Composite Bond Index 0+ Years (CBBI All Series All Mats Accumulation pre Oct 1989), S&P/ASX 200 Property Accumulation Index (ASX Property Trusts Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Net Index ($A). IRESS/RIMES

Interest rates

Source: Bloomberg, RBA Cash rate June 2004

4

5

6

7

8

Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04

The imputation impact

3.91%3.25%After tax yield

3,9143,254After tax return

861,496Tax payable

1,714-Less Imputation credit

1,8001,496Tax incurred @ 31.5%

5,7144,750Gross/taxable return

1,714-Imputation credit

-4,750Interest - 4.75%

4,000-

Dividend Yield - 4%, Fully Franked

100,000100,000Investment

SharesCash

 

31.50%Marginal tax rate:

2.94%2.45%After tax yield

2,9432,446After tax return

1,0572,304Tax payable

1,714-Less Imputation credit

2,7712,304Tax incurred @ 48.5%

5,7144,750Gross/taxable return

1,714-Imputation credit

-4,750Interest - 4.75%

4,000-

Dividend Yield - 4%, Fully Franked

100,000100,000Investment

SharesCash

 

Marginal tax rate:

* Assumes a corporate tax rate of 30%, cash return of 4.75%, dividend yield of 4%

Conclusion

Investment markets are unpredictable

Cash is often not the best long term investment strategy

The impact of tax & inflation is important in investing

Investing for the long term smooths returns