As we move into 2025, now would be a good time to reflect on the year that was for ASX shares and Australian investors.
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A strong year for the ASX 200
Despite running out of steam and pulling back in December, the S&P/ASX 200 Index (ASX: XJO) delivered a solid performance in 2024. In fact, the benchmark index hit no less than 24 new record highs before finishing the year at 8,159.1 points.
This means that the ASX 200 Total Returns index, which includes dividends, returned 11.2% over the 12 months.
Given that the share market has historically generated an average total return of 10% per annum, this certainly isn't something to be sniffed at. However, there will no doubt be a few envious looks across at US investors who enjoyed a significantly more prosperous year.
US shares outperform
With one trading session left to go, Wall Street's S&P 500 and Nasdaq Composite indices are up 25% and 31%, respectively, in 2024 before dividends.
This has been driven largely by Donald Trump's US election victory, interest rate cut optimism, and excitement around artificial intelligence (AI). These have put a rocket under megacap tech stocks like Nvidia (NASDAQ: NVDA) and Amazon (NASDAQ: AMZN).
Unfortunately, while Australia is home to many quality tech stocks such as Life360 Inc (ASX: 360) and Pro Medicus Limited (ASX: PME), which both delivered mouth-watering gains this year, the sector isn't large enough to have anywhere near as much impact on the performance of the ASX 200 index as Nvidia and the Magnificent Seven have on US indices.
Nevertheless, Wall Street's outperformance was good news for the growing number of Aussie investors that have put their hard-earned money into iShares S&P 500 AUD ETF (ASX: IVV) and Betashares Nasdaq 100 ETF (ASX: NDQ). These exchange-traded funds (ETFs) have delivered returns of approximately 35% this year.
Making bank on the banks
This time last year, almost all major brokers were describing Commonwealth Bank of Australia (ASX: CBA) and the rest of the big four banks as overvalued.
In fact, Goldman Sachs was warning investors that the CBA share price would be heading to $81.64 in 2024. Whereas it has just finished the year at $153.25, which is almost double the broker's prediction and means an annual return of approximately 37% before dividends.
Similarly strong returns were generated by National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC). ANZ Group Holdings Ltd (ASX: ANZ) shares were an outlier with a more modest 10% gain. Though, it finally completed the blockbuster acquisition of the banking operations of Suncorp Group Ltd (ASX: SUN) during the year, so it certainly wasn't for a lack of trying.
The banking sector benefited from better than expected results from the big four and optimism that inflation is now under control and interest rate cuts are on the horizon. The latter has allayed fears that the banks could experience a significant spike in mortgage defaults.
The big disappointment
Perhaps the biggest disappointment for investors and another reason why the ASX 200 index underperformed global markets in 2024 were the miners.
It was a red year across the board for the biggest resources players with BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG), and Woodside Energy Group Ltd (ASX: WDS) recording declines of approximately 20% to 40% for the year. Rio Tinto Ltd (ASX: RIO) shares weren't much better with a decline of approximately 13%.
Concerns over China's economic growth appear partly to blame, as well as cost increases from inflationary pressures.
As these miners are some of the largest companies on the Australian stock exchange, they have a notable impact on the performance of the benchmark index.
Crypto surge
The crypto market was the place to be late in the year when Donald Trump's US election victory ignited the market and ultimately sent the bitcoin (CRYPTO: BTC) price hurtling beyond US$100,000.
This was good news for the increasingly popular Betashares Crypto Innovators ETF (ASX: CRYP), which surged 50% in the final quarter of 2024.
And with Trump appearing very supportive of cryptocurrencies, more and more institutional money has been flooding into the crypto market. This includes from AMP Ltd (ASX: AMP), as we covered here.
Lessons from 2024
I think the overarching lesson for Australian investors from 2024 is that diversification is the key to investment success.
Investors that had a diverse portfolio which included exposure to different sectors and US shares will likely have outperformed the ASX 200 index by a decent margin during the 12 months.
Here's hoping that 2025 will be even kinder to investors.
