Understanding Historical Returns: What Australian Investors Need to Know in 2025

In the world of investing, ‘historical returns’ are often touted as a north star for decision-making. But in 2025, as Australia navigates economic shifts, market volatility, and fresh policy settings, understanding what these numbers really mean—and what they don’t—has never been more crucial. Let’s dig into the data, the myths, and the realities that every savvy Aussie investor should know.

What Are Historical Returns—and Why Do They Matter?

At its simplest, a historical return refers to how much an investment—be it shares, property, or bonds—has earned in the past, typically expressed as an annual percentage. Investors and analysts look at these figures to identify trends, gauge risk, and shape expectations about the future. For example, the ASX 200’s average annual return over the past 30 years sits around 9-10%, factoring in both price growth and dividends. But those numbers mask a rollercoaster of good and bad years.

• Shares: Over the decade to 2024, Australian shares delivered an average total return of 8.2% p.a. (S&P/ASX 200 Accumulation Index).

• Residential Property: National average growth was 6.4% p.a. (CoreLogic, 2014–2024), with wide variation across cities.

• Government Bonds: After a long bull run, 10-year Australian government bond yields now hover around 4.2% (as of May 2025), up from lows of 0.9% in 2020.

But here’s the kicker: past performance doesn’t guarantee future results. And in 2025, that warning feels more relevant than ever.

2025 Policy Shifts: How They Change the Historical Equation

This year, several policy developments have altered the landscape for Australian investors:

• Superannuation Tax Tweaks: From July 1, 2025, higher-balance super accounts face an increased tax rate on earnings above $3 million, prompting many to reassess their long-term portfolio returns.

• Capital Gains Tax (CGT) Indexation: The government has ruled out changes to CGT discounting for now, but bracket creep and inflation mean that real (after-inflation) returns matter more than ever.

• Interest Rate Plateau: The RBA’s cash rate has stabilised at 4.35% after a rapid hiking cycle, changing the risk/return calculus for both shares and bonds. Term deposit rates now exceed 4% for the first time in over a decade.

These shifts mean that relying solely on past return averages could be misleading. For example, bond investors enjoyed decades of falling rates and rising prices—a tailwind unlikely to repeat in a higher-rate world. Similarly, property investors can’t expect the double-digit surges of the 2020–2021 boom to become the norm.

Learning from the Past—But Planning for Tomorrow

So, how should Australians use historical returns in 2025? Here’s what the pros suggest:

• Context Is Key: Look beyond long-term averages and dig into the details—volatility, drawdowns, and the range of outcomes matter as much as the mean.

• Adjust for Inflation: With inflation running at 3.1% in early 2025, focus on real returns. A 5% nominal return means less if costs are rising fast.

• Diversify: Historical returns show no single asset class wins every year. In 2022, shares slumped while cash and bonds offered protection; in 2023–24, global equities rebounded, but property lagged in some cities.

• Beware Recency Bias: Don’t assume last year’s winners will repeat. For instance, tech shares soared in 2023–24 after a rough 2022, but headwinds (like AI regulation) loom in 2025.

Consider this real-world example: An investor who put $10,000 into the ASX 200 in January 2015 would have around $21,900 by January 2025 (assuming dividends reinvested). But they would have endured the COVID crash, interest rate hikes, and multiple corrections along the way. Historical returns smooth the ride—but the actual journey is bumpy.

The Bottom Line: Using History as a Guide, Not a Map

Historical returns are a powerful tool—but only if you treat them as a guide, not a guarantee. In 2025, as economic winds shift and policies evolve, it’s more important than ever to blend the lessons of the past with a clear-eyed view of the present. Smart investors use history to set expectations, manage risk, and build resilient portfolios that can weather whatever comes next.