ASX for yield, US for growth: The data proves it again

Almost 3 years ago, I wrote a piece that got some significant traction and some wholehearted reactions. Almost 22,000 people saw it, almost 18,000 people engaged with it, and there were almost 100 comments. I don’t know where that’s placed on the Livewire Markets rankings, but it seems punchy to me!!

This is it here: Numbers don’t lie – Relying on Australian shares for great returns and building wealth doesn’t work - Sebastian Ferrando | Livewire

The short version is, that the ASX is a wonderful place if you want or need income, especially if you're an Australian tax resident because the franking credit system juices the after-tax yield. But if you're looking for growth, there are much better, and just as accessible, risk-adjusted returns in the US.

But were those assertions right then (spoiler....yes they were), and are they still right now (spolier....yes they are)? And should an event like the Firmus IPO falling through surprise us given the income tilt in the ASX?

I enjoy having people challenge what I believe, even myself sometimes, and to prove me wrong. Be warned that you better come with facts and data when you do that, but I’m always up for it. The thing I often get is, either:

1. Selective data farming – where someone uses end-point sensitivity to derive an outcome. For example, I often hear that the Australian stock market is the best performing market of the last 100 years. BTW, it is true. But two things. First, who on earth has a 100-year holding period?? And second, it ignores a massive split in those 100 years. The first 80 years look nothing like the last 20 years, so I always ask the same thing. What do you think the next 20, 30, 40 years in global capital markets look like – like the first 80 years of the last 100 years, or the last 20 years? I reckon that answer is pretty easy.
2. Overly academic analysis – I get it that portfolio construction, and finance broadly is a complex, potentially elongated, highly studied, and mathematically driven exercise. But that ignores a crucial piece of what finance, and especially financial services, is supposed to do. It’s supposed to serve people, and to help them achieve their life goals. Private clients. Families. And often charities. I’m not here solely to win arguments, so if the only way you can win said argument is to give me 5000 words, or to introduce a bunch of complex algebraic formulae that none of us have seen since third year university, you’ve lost. I can promise you, the overwhelming majority of private clients, and families, and charities couldn’t care less about alpha, beta, gamma, regressions, first derivatives, and vega.

With that as the backdrop, I want to sense check my previous assertions that if you want to grow your assets, the Australian stock market is a relatively bad place to do that. Out of the gate, I’m still right if the two charts below are anything to go by:

Recall that my view is - if you want income, especially if you're an Australian tax resident, franking credits make Australia great. If you need growth though, and you're taking risk in Australia to get that growth, that risk budget is better spent in the S&P 500 and the Nasdaq 100. They are more volatile markets, I get it, but once you risk-adjust the returns, you’re either taking too much risk in Australia, or you’re leaving money on the table in Australia.

If you want to go to the Gold Coast for the day, take your Ferrari. If you need to go to Coles this afternoon, take the Camry. Pick the right tool to do the right job.

Last time, my first step was to do a total return analysis of the top 20 gross dividend payers in Australia, to see if solely focusing on high dividends would get me the returns I needed. The gross dividend means I’ve taken franking into account. Then, to make the portfolio more realistic, my second step excluded every company less than $5B market cap (because not many people would routinely know that company, let alone hold it), and I added some Australian dividend portfolio staples. I added RIO, BHP, and the big 4 banks. When I did that 3 years ago, the total returns were not good – the top 20 gross dividend payers delivered a less than 2% return for the previous 12 months, and the amended list was better, but still only 4.25% for the same 12 months.

To contrast, a 50-50 mix of the S&P 500 and the Nasdaq 100 (one of a couple of ways that I typically get exposed to US growth) delivered 21% over the same 12 months. Versus 4.25% in the best-case scenario focusing on Australian dividends.

Let’s run the same analysis and add a 5-year number as well. When I pulled this data as at the close on Fri 9 Oct 2026:

Remember – this is price data only, no income. The analysis I’m trying to do is based purely on growth, not distorted by income. We’re trying to figure out whether or not we should be getting our GROWTH from Australia, or from somewhere else, namely the US. That question seems quite categorically answered, so let's pivot.

Fully franked dividends play such a significant role in our markets and in Australian investors' minds, I'm going to include them in the comparison below, but not include them in the US returns. What a guy!!! Spoiler, it doesn't turn out well.....

Last thing – I do often add some equal-weight S&P 500 exposure, as opposed to purely market cap weight, to try to cool the risk off a little. So let’s try one more thing – let’s do a 30-20-50 weight between S&P 500 market cap, S&P 500 equal weight, and the Nasdaq 100.

I should note that the 5-year number for the "Top 20 Divs" (the top 20 gross dividend yields on the ASX) and for the "Tailored ASX Divs" (the more realistic Aussie dividend portfolio) is as generous as I can possibly be because I have assumed the current dividend yield is the same yield going back 5 years. That is clearly not the case, but I also want to very clearly make my case.

And my case is, in short, there's no Australian based version of these portfolios that comes realistically close. In the single instance that it does come close, it relies on a very generous, and unrealistic, application of fully franked dividends.

But my point is, if you're looking for growth, the dividends shouldn't matter - you want growth.

When building portfolios for private clients, investing should almost never take the lead. Investment ideas and portfolio allocations are the output of a lot of work, they're not an input. If you're talking to an adviser who wants to start at the portfolio, I'd ask some serious questions because my guess is, everyone gets the same thing.

In contrast, work with someone who tailors everything and ensures you get a bespoke solution, suited to your age, your risk profile, your liquidity needs, your income, your expenses, your goals, your family, the rest of your balance sheet, and then, and only then, do we work on getting a portfolio together.

And when you do that, get the right tools to do the right job. If you need income, there are few options better than fully franked Australian dividends if you can live with equity risk, and if you're an Australian tax resident.

But if you need growth, fish in the right pond. Don't put your marlin rod into your goldfish bowl, you're going to be sorely disappointed.

It turns out my assertions from 3 years ago remain valid - the right place to get growth exposure is in the US.

Good luck out there.