The Australian sharemarket fluctuates every day, because every day thousands of buyers and sellers of shares trade their shares.

Sometimes, specific events will cause the value of certain shares to rise or fall. You may remember some positive events that caused the sharemarket to rise (eg tech boom, resource boom). You might also remember some negative events that caused it to fall (Asian financial crisis, tech wreck and global financial crisis).

But overall, the Australian shaemarket has risen substantially over time.
In fact, the value of $50,000 invested in December 1993 is worth $150,342 in December of 2008, 15 years later (figure 8). This is an average return of 7.6% pa (assuming dividends are reinvested).

Historically, markets have always recovered.

The Australian sharemarket began trading in 1875. It has delivered positive annual returns in 95 out of 133 years. This is 71% of the years. Of these positive returns, most were between 0% and 20% (figure9).

There are, of course, years when the sharemarket has delivered extraordinary positives (up to 40%) or negatives (as low as -40%). But it’s important to remember that these results are rare.
While the swings in the market might look extreme over one year, they are less pronounced over the long term. Traditionally sharemarkets have recovered from short-term setbacks with significantly higher gains.

Growth of the Australian Share Market

Volatility is not necessarily a bad thing.

Figure 9 shows just how volatile shares can be. For instance:

1. Shares fell by more than 30% in 1930.
2. But for most of the decade returns were very strong, ranging between 10% and 20%.
3. They even rose as high as 30% in 1933.
The 1970s is another example.
4. Shares had a poor year in 1974, returning -32%.
5. However in 1975, the following year, shares rose by 49%.
6. This was followed by another ordinary year in 1976.
7. But shares rebounded in 1977 (10%) and 1978 (12%).
8. They then deliver outstanding returns in 1979 (37%) and 1980 (38%).

Shares seem more volatile than other types of growth investments like residential property. Residential properties are valued much less often, generally when the owner is looking to sell. If they were auctioned daily their values could go down depending on daily demand which would vary rapidly.

It’s also important to remember that volatility is not necessarily a bad thing. If there is volatility in the market, it means that there is liquidity (ie there are people looking to buy your investment should you wish to sell).

Figure 9 - Markets have always recovered
annual Performance of the Blended All Ordinaries Index (1876 - 2008)

Acknowledgement:

The real value of investing in shares 2009

Perpetual Investments