The Historical Returns For Stocks

What Are The Historical Returns For Stocks, Bonds, Gold, Real Estate, And Cash? (Asset Class Returns)

Do you sometimes wonder what are the historical returns for stocks, bonds, gold, real estate, and cash? Which asset class has performed the best over the last century? We are wondering, and we thus decided to compile all the data into tables and statistics. We calculated the historical returns and got these numbers:

Stocks have returned 9.9% since 1928, gold 5%, bonds 4.6%, real estate 4.3%, and cash 3.3%. 

Not surprisingly, stocks have performed the best over the last century. We suspect that many are surprised that real estate has not performed better than a “mediocre” 4.3%. 

What Are The Historical Returns For Stocks, Bonds, Gold, Real Estate, And Cash? Database

We decided to have dig into the database of Aswath Damodaran, the famous lecturer at Stern University in New York.

He has been so kind to publish it for free! Even better, he updates the data frequently. You find a link to it here.

Historical returns from 1928 until today

Let’s look at what 100 invested in 1928 is worth for the main asset classes:

Historical returns for stocks, bonds, gold, cash, and real estate
Historical returns for stocks, bonds, gold, cash, and real estate

If you invested 100 in 1928, we see that stocks have outclassed bonds, gold, real estate, and cash. It’s a slam dunk for stocks. The chart above is logarithmic (a linear chart would not make sense, see here for linear vs. logarithmic charts and scale).

Because the chart is logarithmic, the enormous differences don’t show as well, so let’s summarize the findings in a table. The table below probably illustrates better the differences (showing the value today of 100 invested in 1928):

 S&P 500GoldCashReal estateBonds
100 in 1928 is worth today787,01810,0412,2495,3607,278
CAGR/Return %9.953.34.34.6

In case you wondered, dividends are included in the backtest. 

100 invested in the stock market in 1928 would have been worth 787 thousand today, compared to only 10 thousand for gold, the second-best performing asset.

Stocks returned 9.9% annually while gold returned 5%.

Does this mean you should allocate all your capital to stocks (because it’s the best performing asset class)?

No, not necessarily. That’s because stocks are a lot more risky than bonds, for example. Another argument, is that other assets might complement stocks because correlation is low. This has been an argument for including bonds in a portfolio, which is a defensive asset and used for risk mitigation. We have described risk mitigation and returns in more detail in our review of Mark Spitznagel’s Safe Haven Investing

The graph below shows the risk beautifully (taken from the blog called A Wealth Of Common Sense – a site we strongly recommend to follow):

Stocks and bonds, returns and risk
Stocks and bonds, returns and risk

Stocks have had huge drawdown compared to bonds and cash, as indicated. Imagine yourself retiring in early 2008 and being 100% invested in stocks. It would be devastating to see the stock market plummet 50% over the next months! This is why you should be careful when allocating 100% to stocks. 

What are historical returns?

Historical returns provide insights into the past performance and rate of return of an investment or asset class, such as bonds, stocks, securities, indices, or funds.

Historical returns might give a strong indication of what to expect in returns over the next decade(s).

If you invest in stocks, you should think in decades, not years (some might disagree, but the longer you own, the more likely you are to get the historical returns). 

Thus, historical returns might be a guide of what to expect over the long term, although returns vary a lot in the short term.

Just look at the graph below of the annual returns in the stock market and you understand why you need to have a long term mindset when investing in stocks:

Why you need a long term mindset in stocks
Why you need a long term mindset in stocks

The returns are “all over the place”, but we notice that the chart is tilted toward more frequent positive than negative years, and that the positive years tend to be bigger than negative years. It’s positively skewed!

Also, losing years don’t happen many years in a row. It was four down years in the 1930s and we hade three horrible years after the dotcom bubble burst. But that’s about it. 5 or more positive years in a row is not unusual. 

However, historical returns can vary significantly based on the asset class and timeframe under consideration.

Historical asset returns returns by decade

Let’s look at the historical returns by decade for stocks, cash, bonds, real estate, god, and inflation (the table shows the annual/CAGR/geometric returns per year for that particular decade):

Historical asset returns by decade
Historical asset returns by decade

Yes, there are many colors in the table, but we see that even by decades, the main asset classes vary a lot in performance. 

The only asset that showed negative performance over two decades, which is 20 years, was gold during the 80s and 90s. This happened after a spectacular performance during a decade of inflation during the 1970s. 

Perhaps worth noting is that even stocks can go sideways or even negative over a decade. This shows the importance of having a long tern perspective.

Understanding Historical Returns

It’s important to understand that historical returns are no guarantee about the future. History never repeats itself, but it’s still the best estimate you can get about the future possible returns.   

Most likely, the longer you hold an asset, the more likely you are to get the historical returns. 

The chart below shows the rolling returns of S&P 500 from 1993 until today and how returns in volatility goes down the longer you stay invested:

Rolling stock returns
Rolling stock returns

Clearly, we see that the longer the time horizon, the less erratic and random the curve.

The blue line on the screen shows the three year annual returns, and it’s clearly a lot more erratic and volatile than the yellow line which shows the ten year annual returns.

The longer you own an asset, the more likely you’ll get the long-term average return! This is because returns snowball:

What is the snowball effect of compounding?

The snowball effect in compounding is when your earnings start earning earnings, and so on. This can lead to exponential growth over time.

This is because you are earning interest on your interest, as well as on your original investment. This is what the famous investor Howard Marks calls “the interest of the interest”.

The snowball effect is one of the most powerful forces in finance. It is why it is so important to start saving and investing early. Even if you can only invest a small amount each month, the power of compounding will help your money grow over time. The only biography about Warren Buffett endorsed by the man himself is called Snowball. This is no coincidence.

Main takeaways

  • Compounding takes time – it snowballs. It starts small, but it might end big (see more below).
  • Over long time horizons, bear markets don’t matter much.
  • Over short time periods, bear markets matter. Pensioners should take notice. The sequence risk matters for short periods but becomes less significant as time goes by.

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