What to do when you find $10,000 in the cupboard

Travellers to Australia must declare cash greater than $10,000, so the $9,900 stashed in a friend’s pockets and bags were safe. Returning in March 2020 as covid started, she put the cash into a cupboard—yes, a cupboard—which is generally not known for market-beating returns. Minus the occasional raid for coffee money, that $9,900 is still there, in an old shoebox behind the socks.

What returns could she have gotten had she diversified out of Cupboard Ltd?

Running the numbers

With Morningstar’s data, I ran the numbers my friend didn’t. Today’s investors are spoiled for choice, so I’ve included options to suit lots of risk appetites and preferences.

Since funds often report monthly, I’ve started on 1 March 2020 and finished at month end 28 February 2021. For equities, I’ve gone until market close 30 March 2021.

For simplicity’s sake I’ve rounded the starting figure to $10,000. Remember, fees will reduce these returns slightly.

The Master of the (Investment) Universe(s)

It’s been a roaring year for equities, and international exposure has been especially profitable. Had my friend put the money in Vanguard’s US Total Market Shares ETF (VTS), she would be $1,306 richer. The figure would be $992 had she chosen VanEck Vectors Morningstar Wide Moat ETF (MOAT), which tracks firms Morningstar has awarded a Wide Economic Moat.

Warm colours for equities, cool colours for fixed interest, cash, and gold.

Source: Morningstar Direct and Morningstar Presentation Studio.

When it comes to defensive assets, the cupboard wins. Gold is down significantly from last August’s peak. Investing in iShares Core Composite Bond ETF (IAF) or Vanguard Intl Fxd Intr (Hdg) ETF (VIF) would have cost her $298 and $154 respectively. About 50 coffees’ worth.

Top ten holdings in the VanEck Vectors Morningstar Wide Moat ETF

The Strategic Approach

Had she decided to vary by investment strategy, which option would have delivered the best returns over the last year? Vanguard’s Diversified High Growth ETF (VDHG) would have left her up $1,030. In a boom year for equities, a conservative approach would still have netted $287.

Warmer colours, higher risk options.

Source: Morningstar Direct and Morningstar Presentation Studio.

A sustainable approach with BetaShares Australian Sustnby Ldrs (FAIR) would have underperformed relative to other options. She would only have walked away with $4—and a relatively cleaner conscience.

It’s important to remember that one year is an insufficient time to evaluate an investment.

The Stock Picker

Had my friend tried her hand at stock picking, a lot would have depended on whether she had chosen buy-now pay-later juggernauts Afterpay (APT) or Zip (Z1P). The former would have tripled her $10,000, the latter 2.7x.

Source: Morningstar Direct and Morningstar Presentation Studio.

What about her return on blue-chip wide moat stocks? All in on BHP (BHP), Commonwealth Bank (CBA), Telstra (TLS), or Westpac (WBC) would have left her several hundred dollars the richer. In a tough year for travel and oil prices, Qantas (QAN) and Woodside (WPL) have struggled. She would be down $958 and $1,165 respectively. About 260 coffees’ worth.

Excluding Afterpay and Zip

Source: Morningstar Direct and Morningstar Presentation Studio.

You can find the stocks mentioned here and more in our piece on the top ASX trades of 2020.

The Slow and Steady

Most investment strategies require looking beyond a single year or a single amount. Steady accumulation over a long period is the name of the game for most of us. Overreliance on any single stock or index is risky – for every Afterpay there is a Pets.com.

Over the long run, volatility is unavoidable but trying to time the market can mean missing the highs and the lows.

Morningstar research on 3,700 global funds showed that, over a 15-year period, only 5 per cent of the months were critical. Had you missed those months, your fund would have failed to meet its benchmark.

Here are my friend’s returns based on an investment beginning in December 2015, and with an added $100 each month.

Warm colours for equities, cool colours for fixed interest, cash, and gold.

Source: Morningstar Direct and Morningstar Presentation Studio.

Total percentage returns since 5/12/2015

Source Morningstar Direct

The moral of the story? You can do better than the cupboard.