Why young Australians should abandon the ASX

I've beaten this drum before, but Australian investors have an unwavering home bias. And that's mostly fine if you're an older investor looking for solid returns and reliable income in the form of franked dividends. 

But if you're under the age of 40, that should really be the last thing you're looking for if you're aiming to grow your wealth over time. And grow is the key word there.

The one big advantage young investors have over older ones is time. And because of the power of compounding returns, time's biggest ally is growth. 

Here's some quick back-of-the-napkin maths to illustrate the point. 

Say you have $10,000 to invest for the long term. At an annual return of 10% (roughly the ASX 200's historical annualised return), that turns into $164,500 over 30 years. 

However, that same $10,000 turns into almost $229,000 over 30 years if we simply dial the annual return up to 11%. That's a massive difference for what seems a fairly negligible difference in annual return. 

The Nasdaq 100, arguably the world's best growth index, has an annualised return of 14% since 1985, which would turn our $10,000 into more than $500,000. 

If that doesn't demonstrate the importance of seeking long-term growth, I don't know what does. Unfortunately, you're probably not going to find that on the ASX over the next 30 years, and recent changes to capital gains tax are likely to exacerbate the problem.

I spoke to Koda Capital's Sebastian Ferrando, not one to shy away from calling out the ASX's lack of growth. And his message is clear - the ASX is not the place to be if you're a young investor looking for long-term growth. 

"If you need income, the ASX is a wonderful place to be, for now and for the near future at least," said Ferrando. "Especially if you’re an Australian tax resident because not only is the stand-alone dividend yield quite good, for Aussie tax residents, the franking credit system makes it even better. If you need growth though, the ASX is a horrible landing spot."

If growth is what you need, he says it's time to look elsewhere.

"Get the right tools to do the right job. Take your Ferrari to the Gold Coast, take your Camry to Coles."

How we got here

The ASX has long been an income-first market, dominated as it is by banks and miners, but Ferrando says its ongoing struggles with growth goes back to policy decisions made by multiple Australian governments, and other institutions, since the GFC. 

"It has underperformed year-after-year and there is a very good reason, that arguably started earlier, but mechanically started in 2008," said Ferrando. 

"When global interest rates fell to zero, markets and economies and even governments had a choice to make – deploy the cash productively, deploy the cash unproductively. We chose the second option (specifically, housing)."

 The US is an example of a country that chose the former, and that has been reflected in the incredible growth it has enjoyed since then. 

While some readers may understandably take issue with using that as a starting point - and point to the ASX 200's long-term record - it illustrates the broader shift that has meant the Australian stock market is unlikely to be home to growth going forward. 

"For all of the talk of the ASX being the world’s best performing stock market in history (which is true), it hides a really important fact," said Ferrrando. "Once the world went fully global, and we then digested the GFC, we underperformed because global markets changed."

What's important for young investors today is a market's growth prospects over the next few decades, and the ASX's historical strength has no bearing on that. 

"I don’t know anyone who has a 100+ year time frame, making the 'best stock market in history' claim pretty moot," said Ferrando. "Nevertheless, there’s the first 75-ish years of the ASX, and the next 25-ish. Looking globally, what does the next 25 years more likely look like - the first 75 or the last 25? I reckon that answer is easy."

Why young investors should leave the ASX - and where they should go

Ferrando says young investors seeking better returns need to jump ship from the ASX, and there's one obvious destination. 

"If you need long-term reliable growth, go to the US."

Here is how the performance of the ASX 200 lines up against its US peers over 1-, 3- and 5-year periods. All numbers are for the ASX-listed investible options for each index, as of 31 August 2026, and track the total annual return (i.e. dividends included). 

Blend is Ferrando's preferred portfolio exposure, with a 30-20-50 allocation to S&P 500 market cap weight, S&P 500 equal weight, and Nasdaq 100.

The dispersion in returns doesn't look too dramatic in this form, but as I hopefully established at the top of this wire, they lead to dramatically different outcomes. Ferrando agrees.

"Lots of people then say to me, 'it’s only a few percentage points here-and-there, big deal'. Compound those 'few percentage points' over 20, 25, 30 years and let me know how that goes for you!"

Beyond the return itself, I'd argue there's a handful of additional factors that mean young investors should ditch the ASX. 

One is simply a question of diversification. For most Australians, your financial future is already so closely-tied to the Australian economy that pinning your portfolio on the same horse is a big risk. 

Between your job, home (if you own one) and super account, chances are the vast majority of your current and future wealth is a de facto bet on the country. Even ostensible "high growth" super funds, like the one I'm in, have a 30-40% allocation to Australian shares. That's too much concentration given the rest of my finances are inextricably-linked to the country. 

There's also the fact that the changes to capital gains tax will likely push the ASX further along the income-first path, and the removal of the CGT discount makes raw returns even more vital.

Finally, there's the fundamental issue that younger generations, through no fault of their own, already face an uphill battle in terms of growing their wealth in the same way previous generations were able to. In that context, long-term growth is effectively all that matters. 

It seems like high time young investors consider broad US exposure instead of sticking with the same old ASX. Encouragingly, Samy Sriram, Stake Market Analyst, says this trend is already playing out on the investing platform.

"Our youngest investors overwhelmingly favour Wall Street," she said. "Most of that exposure comes through ETFs like IVV, NDQ and VGS, not single stocks."

According to Ferrando, things have fundamentally changed and the next generation will need to make a departure from the conventional wisdom if they want to get ahead. 

"There's the theory we grew up with in Australia that buying real estate and buying fully franked dividend payers will make you rich. Both of those ideas are wrong – they won’t make you rich, far from it."