Our Parent Company: Why Investing in Australia Is an Act of Civic Commitment

Every year, Australians pour tens of billions of dollars into American equity markets through exchange-traded funds, managed funds, and platform accounts. The argument is compelling on its face: the S&P 500 is the global benchmark. It has delivered extraordinary long-run returns. Since Hon. Jim Chalmers stood in parliament to deliver the 26/27 budget proposal, rhetoric has been sharply divided, often misguided and misinformed.

So, why would any informed investor look elsewhere?

The argument is also, in important ways, misleading. And at this Foundation, where our work turns on the health of Australia's civic and economic fabric, we think that matters — not just financially, but structurally.

The S&P 500 Is Not What It Appears to Be

The S&P 500 tracks 500 large-cap US companies; technically 503 stocks, because three of those companies (Alphabet, Fox Corporation, and News Corp) carry dual share classes within the index. But the more important number is seven.

Seven companies — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — collectively known as the Magnificent Seven, hold approximately one-third of the index by market capitalisation as of mid-2026.

More strikingly, they have driven a disproportionate share of the index's headline returns for three consecutive years: contributing more than 60% of the S&P 500's total annual gain in 2023, more than half in 2024, and just under half in 2025. In 2023 alone, the S&P 500 returned approximately 26%.

Strip out the Magnificent Seven, and the remaining 493 companies returned closer to 10%.

This matters because Australians who benchmark against the S&P 500 headline are, in effect, benchmarking against a concentrated bet on seven US technology companies, not on the breadth of the American economy.

The benchmark obscures more than it reveals.

It is worth noting that in 2026, market breadth began to improve. The Magnificent Seven have underperformed the broader index year-to-date, and more companies are contributing to overall returns. This does not invalidate the concentration argument; it illustrates it. The benchmark's apparent strength or weakness now turns substantially on the fortunes of a handful of AI-adjacent technology giants, and that structural dependency is not resolved by a single quarter's rotation.

What the S&P 493 Actually Returns

When analysts separate the Magnificent Seven from the remaining 493 companies, a grouping that has acquired its own label in financial commentary, the comparison with the Australian market becomes far more instructive. The S&P 493 returned approximately 25% in US dollar terms over 2023 and 2024. The ASX 200 total return index, which includes fully franked dividends reinvested, returned approximately the same over that period in Australian dollar terms.

Before considering any structural advantages for Australian investors, the headline performance comparison suggests rough parity. Once you add those structural advantages, the domestic case strengthens considerably.

What Australia Actually Offers

The ASX's sector composition differs from the S&P 500's — it's heavily weighted toward financials and materials rather than software and consumer technology. That has historically constrained capital growth relative to US tech. It has also generated something the S&P 500 cannot: a franking credit regime that returns pre-paid corporate tax directly to Australian shareholders.

Franking credits are not a trivial benefit. For superannuation funds in retirement phase, and for income-oriented investors, fully franked dividends represent genuine after-tax value unavailable from any foreign equity. A 4% fully franked dividend yield, for an SMSF in retirement phase, carries an effective after-tax return approaching 5.7% — because the 30% corporate tax already paid on those earnings is refunded as a credit, on top of the cash dividend received. That arithmetic does not appear in the benchmark comparison materials distributed by most Australian financial institutions.

Companies such as CSL, Macquarie Group, REA Group, Aristocrat Leisure, and Pro Medicus illustrate a tier of Australian business capable of competing on global terms while generating returns over ten-year horizons that stand up to rigorous comparison.

The domestic investment case is not sentimental. It is structural.

The Policy Landscape Has Shifted

The 2026–27 Federal Budget, handed down on 12 May 2026, represents the most significant restructuring of the Australian investment tax environment in a generation. Three changes are particularly material for investors considering their long-term positioning.

First, the 50% capital gains tax discount (which has shaped Australian investment strategy since 1999) will be replaced by cost-base indexation from 1 July 2027. For assets held for more than twelve months, this shifts the structural incentive toward assets in which real capital appreciation exceeds inflation: a profile that favours high-quality, dividend-paying Australian equities.

Second, Division 296 (the Better Targeted Superannuation Concessions Act, now law and commencing 1 July 2026) imposes a 15% additional tax on earnings attributable to superannuation balances above $3 million, with a further 25% tax on earnings above $10 million. For high-balance members reconfiguring portfolios in response, the relative attractiveness of franked income (where the tax is partially prepaid at the corporate level) increases as other concessions narrow.

Third, for those with significant offshore exposure to US equities, the trajectory of American tax policy warrants attention. The One Big Beautiful Bill Act, signed into law on 4 July 2025, contained a provision — Section 899 — that would have imposed retaliatory withholding taxes on Australian investors in US assets, following Australia's designation as a jurisdiction with 'discriminatory' tax measures. The provision was ultimately removed before enactment, following G7 negotiations. But its inclusion, its near-passage, and the political environment that produced it constitute a documented policy signal: the US Congress has demonstrated a clear appetite to use the tax code as a retaliatory instrument against foreign investors. That risk is not resolved by removing one clause from one bill.

Investing in Australia Extends Beyond the Market

There is another form of Australian investment that rarely appears in a financial planning conversation but carries structural importance for the country's long-term trajectory: giving to organisations with DGR Item 1 or DGR Item 2 status.

DGR Item 1 organisations allow donors to claim a full tax deduction for gifts above two dollars. DGR Item 2 organisations (including Public Ancillary Funds such as the Named Fund, through which this Foundation operates, Australian Communities Foundation) provide the same deductibility and direct funds to public benefit purposes through structured grant-making. Charitable donations remain fully deductible under the 2026 Budget framework, including on top of the new $1,000 instant work-related expense deduction.

In the revised CGT and trust minimum tax environment, the tax efficiency of DGR giving has become a more significant planning consideration.

A country whose young people understand how its institutions work — how policy is made, how an argument is constructed and tested in public — is a country that makes better collective decisions. That is the foundation on which long-run economic performance depends. The organisations building that capacity are among the highest-return, lowest-visibility investments available to Australian philanthropists.

The Obligation of the Long-Term Investor

None of this is an argument against global diversification. It is an argument against outsourcing your investment thesis to a narrative shaped by the performance of seven US technology companies, and against the assumption that Australia's market is structurally inferior because it is differently composed.

Australia has a stable rule of law, world-class superannuation infrastructure, a geographically essential trading position, and a tax system that, for all its current reform complexity, provides unique benefits to domestic investors.

The question worth sitting with is this: if you would not dismiss an investment in your own business because it was not Apple, why would you dismiss an investment in your country because it was not the S&P 500?

Invest in Australia — including in the organisations building the civic capacity of its next generation.

Disclaimer: The content above is for general information and civic education purposes only. It does not constitute financial advice. Past performance is not a reliable indicator of future results. The Odyssey Leadership Foundation is not a financial services licensee. Please consult a qualified financial adviser, accountant, and tax professional before making any investment or tax decision.