The Berlin Wall

The world was a very different place 30 years ago! I had just commenced my financial planning career with the ANZ bank. At the time the Reserve Bank of Australia cash interest rate was 17% which seems incomprehensible compared to a mere 0.75% cash rate today.

Back in 1989, fresh in the minds of investors was the remnants of the 1987 sharemarket crash when the Dow Jones Industrial Average index plunged by 22% in a single day. Therefore, if you could get 17% pa with the safety of a term deposit why would you even consider investing in the risky sharemarket? Mind you, greed was still prevalent. Many people would happily forgo the security of 17% with the bank for 19% on offer via Pyramid Building Society, unfortunately we all know how that worked out!

What we may forget about that time was the amazing event that occurred on the 9th November 1989 which had possibly the most significant effect upon the world economy over the next 30 years. Back in 1961, the Berlin Wall was erected overnight taking residents of both sides by surprise. It was an attempt to stop people from the East German Demographic Republic (GDR) leaving for opportunities in the West. The wall remained in place for 29 years until people power brought it down and many East Germans experienced simple pleasures that Westerners had taken for granted.

It could be argued that this was a victory for Capitalism which is the economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.

Back on December 29th 1989, the Dow Jones was 2,753 points. 30 years later it’s 27,861 points, an increase of 1,012% as a result of an 8% pa compounding average return over that time. $100,000 invested into a Dow Jones Exchange Traded Fund (ETF) in 1989 would now be valued at $1,012,023. Whereas a Term Deposit generating 17% income in 1989 would now be producing $2,000 pa interest and the buying power would have been severely diminished by the effects of inflation over that time.

Over the past 30 years we have experienced recessions, the dotcom crash, September 11, wars and the GFC to name a few challenges however if you believe in the pursuit of human endeavour, are an optimist and are prepared to invest for the long term into quality businesses then history shows us that wealth creation will occur automatically.

We have much to thank the endeavours of the East German’s 30 years ago for bringing down down that wall.

By Terry Powell – Managing Director

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