Every investment falls into one of two broad categories: growth assets (which aim to increase in value over time) and defensive assets (which aim to preserve capital and provide stable income). Understanding the difference is fundamental to building a portfolio that matches your goals and risk tolerance.
Growth Assets
Growth assets are investments that aim to deliver capital appreciation (rising prices) over the long term. They tend to be more volatile — their value can fall significantly in the short term — but have historically delivered higher returns than defensive assets over long periods.
Australian and International Shares
Shares are the primary growth asset for most investors. When you own shares, you own a portion of a real business. Over time, as companies grow profits and expand, their share prices tend to rise.
ASX 200 total return (dividends reinvested) — historical context:
- Long-term average: approximately 7–10% per year over decades
- Best year (recent): +23.4% in 2019
- Worst year (recent): −38.4% in 2008 (GFC)
Past performance is not a reliable indicator of future performance.
Australian and International Property
Direct residential and commercial property, as well as ASX-listed Real Estate Investment Trusts (REITs), are also considered growth assets. They typically offer a combination of rental income and capital growth.
Infrastructure
Listed infrastructure — toll roads, airports, utilities — tends to sit between pure growth and defensive assets. It often provides stable, inflation-linked cash flows with some capital growth potential.
Defensive Assets
Defensive assets prioritise capital preservation and stable income over capital growth. They are less volatile than growth assets, but also deliver lower long-term returns.
Bonds (Fixed Income)
When you buy a bond, you lend money to a government or company in exchange for regular interest payments (the coupon) and your principal back at maturity.
Australian Government Bonds are considered very low risk — the Australian Government has never defaulted on debt. Corporate bonds carry more risk but offer higher yields.
Bond values move inversely to interest rates — when interest rates rise, existing bond prices fall (and vice versa). This means bonds can lose value in the short term, even though they are considered defensive.
Cash and Term Deposits
Savings accounts, term deposits, and money market funds are the most defensive assets. They preserve capital almost completely (particularly APRA-regulated bank deposits covered by the Financial Claims Scheme up to $250,000 per person per institution) and provide predictable, if modest, returns.
Comparing Growth and Defensive Assets
| Feature | Growth assets | Defensive assets |
|---|---|---|
| Primary return source | Capital growth | Interest / stable income |
| Typical long-term return | 7–10% p.a. | 2–5% p.a. |
| Short-term volatility | High | Low |
| Suitable time horizon | 7+ years | 0–5 years |
| Examples | ASX shares, ETFs, property, REITs | Bonds, term deposits, cash, bond ETFs |
How Australians Use Both in Portfolios
Most well-constructed investment portfolios include both growth and defensive assets. The split between them is called asset allocation and is the primary driver of long-term portfolio performance.
Simple portfolio examples:
| Portfolio type | Growth | Defensive | Suited to |
|---|---|---|---|
| High growth | 90% | 10% | 20+ year horizon |
| Growth | 75% | 25% | 10–20 year horizon |
| Balanced | 60% | 40% | 5–10 year horizon |
| Conservative | 40% | 60% | 3–7 year horizon |
| Defensive | 25% | 75% | Under 3 years |
How Australian Super Funds Describe These
Super fund investment options directly map to the growth/defensive split:
- High Growth / Aggressive: 85–96% growth assets — ASX and global shares
- Growth: 70–85% growth assets
- Balanced: 50–70% growth assets (shares + property), rest bonds/cash
- Conservative/Capital Stable: 30–50% growth assets
- Cash: 100% defensive (cash and cash equivalents)
The Australian Twist — Franked Dividends
Australian shares have a unique feature: franking credits (imputation credits). Australian companies pay corporate tax at 30%, and when they pay dividends, they can pass those tax credits through to shareholders. For Australians on low or zero marginal tax rates (including retirees and super funds), this can make fully franked Australian shares particularly attractive as income-producing growth assets.
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- Risk vs Return Explained
- Diversification Explained
- Bond ETFs Australia
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- Investing hub
Frequently Asked Questions
Are ETFs growth or defensive assets? It depends on what the ETF holds. An ETF tracking the ASX 200 (like VAS or A200) is a growth asset — it holds shares. A bond ETF (like VAF) is a defensive asset. All-in-one ETFs like VDHG hold both — 90% growth (shares) and 10% defensive (bonds). The underlying holdings determine the classification.
Should Australian investors hold more Australian shares than global shares? Australia represents approximately 2% of global stock market capitalisation. Holding a disproportionately large Australian allocation is called “home country bias” and concentrates exposure in a narrow market (heavily weighted to banks, mining, and resources). Most financial planning frameworks suggest meaningful global share exposure alongside Australian holdings. See our Home Country Bias Australia guide.
Is property a growth or defensive asset? Property is generally considered a growth asset because it aims to appreciate in value over time. However, investment property also generates rental income, which has characteristics of a defensive return. Residential property in Australia is generally less liquid than listed shares — you cannot sell half your house if you need cash quickly.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.