Despite rising bond yields, here’s why I’ll keep investing in ASX shares

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The S&P/ASX 200 Index (ASX: XJO) is having a fairly decent day today, up 0.44% at the time of writing to just over 6,600 points. But even so, no one can deny it has been a tough time for ASX shares (and investors) of late.

Just in the past week alone, the ASX 200 has lost almost 7% of its value. Year to date in 2022, the ASX 200 is now down by a nasty 12.6% or so.

It’s hard to pin down exactly what has spooked investors so convincingly over 2022 thus far. But it’s almost certain that higher inflation and the higher interest rates that walk hand in hand with it are at least partially responsible.

Backtrack to the start of the year, and no one was really talking about inflation. But now, it is the hottest of topics in the investing world (and perhaps everywhere else too). Just last night, the US Federal Reserve raised American interest rates by an unusually large 75 basis points.

Rising interest rates have another consequence, aside from boosting mortgage repayments. They result in an increase in the interest rates paid by new government bonds.

Government bonds might not be of much interest to many investors. But the ‘risk-free’ rates of return they pay have far-reaching consequences.

Bonds are typically considered safer investments than shares. Thus, if the rate of interest they pay rises, it reduces the appeal of having capital in more risky assets like shares. Thus, it can be summarised that higher bond yields equate to lower shares.

But I’m still sticking with shares.


Well, the simple answer is that there is no better alternative to growing one’s wealth. No matter what interest rates, the global economy, commentators, or the in-laws are saying and doing, time and time again, shares have proven to be the best long-term investment for building wealth in this world.

Why investing in ASX shares is a no-brainer

Want proof? Every year, exchange-traded fund (ETF) provider Vanguard releases an index chart that plots the returns of major asset classes over a three-decade timespan.

The latest one was released in August last year, which our chief investment officer Scott Phillips went over at the time.

It showed that Australian shares had averaged a return of 9.7% per annum every year since 1991. US shares were slightly higher at 10.8%, while other international shares were slightly lower at 8.3%.

But you know what didn’t beat Australian shares? Australian property. It averaged 8.6% per annum between 1991 and 2021.

Neither did Australian bonds. They fetched an average of 7% per annum.

They say cash is king, but in the game of long-term investing, it is a pauper, with an average return of just 4.6% per annum.

According to Vanguard, $10,000 invested in Australian shares in 1991 would have been worth $160,498 by August 2021. But $10,000 invested in bonds would come up at just $75,807, and in cash, just $38,938.

This stellar return from ASX shares came despite numerous global events and catastrophes. We had the dot-com crash, 9/11, the global financial crisis, the Euro debt crisis, Brexit, and, of course, COVID.

Over this timespan, we also had inflation, high unemployment, market volatility, and more than one recession. And still, ASX shares come out on top, and it’s not even close.

So that’s why I’m sticking with shares. There is simply no better option. So ignore the volatility and focus on what really matters.