If you’re new to the Australian stock market or investing in it, you’ve undoubtedly heard of the All Ordinaries Index, also known as the “All Ords.” It is among the Australian equity market’s most frequently watched benchmarks. However, what type of long-term returns are reasonable to anticipate?
Understanding the All Ordinaries Index
The All Ordinaries Index tracks the performance of the top 500 companies listed on the Australian Securities Exchange (ASX). Unlike more focused indices like the ASX 200, which looks at the 200 largest companies, the All Ords gives a broader view of the overall market.
It is a market-capitalization-weighted index, meaning companies with larger market values have a greater impact on the index’s movements.
Historical Average Return
Historically, the average annual return of the All Ordinaries has been around 8% to 10% per year, including dividends. However, this number varies significantly depending on the time period you look at and whether you’re factoring in inflation and dividend reinvestment.
Here’s a rough breakdown:
- Nominal annual return (before inflation, with dividends): ~9%–10%
- Real annual return (after inflation, with dividends): ~6%–7%
The Importance of Dividends
One of the most important aspects of investing in the Australian market is the high dividend yield. Australian companies, particularly banks and resource firms, are known for paying out generous dividends. These dividends play a significant role in boosting long-term returns.
If you’re just looking at price changes (capital gains), the returns are lower—around 4% to 6% per year on average. But once you add dividends back in, especially if reinvested, the total return jumps to around 9% per year.
Long-Term Performance Perspective
Let’s put this in context. If you had invested $10,000 in the All Ords in the early 1990s and reinvested all dividends, your investment could be worth well over $70,000–$90,000 today, depending on the exact start and end dates. That’s the power of compound growth over the long term.
Of course, this journey isn’t without its ups and downs. The All Ords, like any equity index, has seen significant volatility—from the dot-com crash to the Global Financial Crisis and, more recently, the COVID-19 shock. But over time, the trend has been upward.
Key Takeaways
- The average annual return of the All Ordinaries (including dividends) is approximately 9%.
- Excluding dividends, the capital growth component is closer to 4–6%.
- Dividends are a major contributor to long-term returns in the Australian market.
- The All Ords provides a broad measure of market performance, covering 500 of the largest companies in Australia.
Should You Invest in the All Ords?
Investing in a broad index like the All Ordinaries can be a smart way to get diversified exposure to the Australian market. It’s ideal for long-term investors who are comfortable with market fluctuations and focused on growth over decades, not days.
As with any investment, past performance isn’t a guarantee of future returns—but history shows that patience and a long-term view tend to pay off.