Last year growth focused super funds earned 9.9 per cent on average. Balanced growth non-super managed funds earned an average of 9.3 per cent. However the returns from the different investment sectors varied widely.  

Cash and short-term deposits earned a low 2.6 per cent.  Fixed interest securities such as government and corporate bonds in Australia earned 5.6 per cent on average. International bonds hedged into Australian dollars also returned 5.6 per cent. 

Australian shares provided a modest 5.7 per cent return. Overseas shares earned a much higher 24.3 per cent, aided by a sharp fall in the Australian dollar. International shares hedged to eliminate currency effects earned 11.0 per cent. 

Australian listed property securities made 20.2 per cent while hedged overseas property securities earned 9.9 per cent. Looking ahead cash and short-term deposits are likely to earn low returns again this year, similar to last. While the US has stopped its money creation program Europe and Japan are increasing theirs so there is still a global surplus of cash seeking a home. 

Inflation, which usually appears when there is a boost in the amount of cash chasing the same quantity of goods around the financial system, has so far failed to materialise. Therefore there is no obvious need for central banks to raise interest rates. The US is likely to make some small moves.

Returns from fixed interest securities last year were made up of a low income plus some capital gains. With interest rates as low as they are likely to go, capital gains are unlikely so bonds may be restricted to around 3 per cent this year. 

Australia’s challenges such as low commodity prices, high labour costs compared to overseas competitors, lack of productivity growth and slower growth in China are well documented. Despite this our economy is surprising analysts by demonstrating stronger growth than they predicted. 

The economy grew 0.6 per cent in the March quarter, following strong 0.8 and 0.6 per cent increases in the two preceding quarters when most economists expected very slow growth. The economy grew 2.2 per cent over the last year, sound in the circumstances. 

The two main positive influences are the very low borrowing costs for consumers and businesses, and the fall in the Australian dollar. The weaker currency has made our business costs more competitive, our exports more profitable, and imports more expensive, assisting  producers. 

The dollar may not fall much further but has already improved our opportunities greatly. Australian shares are trading at about their long-term average price to earnings ratios, but if allowance is made for the very low interest rates they are trading below fair value. 

Therefore shares should do better than last year and may produce quite good returns. Commercial property will also benefit from an improving economy creating demand for space. However property securities are likely to earn much more moderate returns than last year, even though still sound. 

Last year international share returns were aided by a sharp fall in the Australian dollar. It may not fall much further but the global economic outlook is reasonable. The Greek sideshow is being managed. China is still growing at seven per cent per annum. 

The US and Asia are doing well. Europe is recovering and Japan is looking better. International shares also offer sound value given current low interest rates. There will be periods of pessimism and volatility but returns should be quite good.