Very insightful long-term study of investment returns, from 1900 to the present, across 23 countries.
I highlight a few results below that I think might be of interest (particularly for people that are thinking about investing/retirement).
1. Annualised real total return (hence, ARTR) for the world from 1900 to 2016 (USD real terms) was 5.1% for equities, 1.8% for bonds.
For US equities, it was 6.4%.
(Note that this includes re-investment of dividends, so this is annualised real total return. Annualised real price return (capital gains without div reinvestment) was only 2.1%.)
(Note that the German DAX is a total return index, while most other commonly quoted indices are price return indices.)
2. The 1980's and 1990's were a golden age for stocks. The ARTR on the world equity index was a staggering 10.6%, thus doubling your investment every 7 years (real terms).
3. The years 2000 to 2016 were much worse for equities. The ARTR on the world equity index was just 1.9%, doubling your money only after 37 years.
ARTR were negative or zero in Italy, Portugal, Netherlands; 0.8% in Japan, 2.2% in Germany, 2.4% in the UK, and 2.7% in the USA. Better in countries with commodities: Australia 5.1%, New Zealand 6.4, South Africa 8.2%.
4. Over 2000–16, bonds were the best asset class in 16 of the 21 countries, returning ARTR 7.1% in Germany and 5.1% in the USA.
5. Vol (for 1900 to 2016) has been around 20% p.a. (world 17%, USA 20%, UK 20%, Germany 32% (bloody wars!)).
6. Equity worst years were down 40%-60% in many countries 2008, 73% to 90% in the axis countries after WW II.
7. Inflation 1900 to 2016 was 2.9% p.a. in the USA, 3.7% in the UK, 4.6% in Germany, 8.1% in Italy. So, over the period, US consumer prices rose by a factor of 28, UK by a factor of 70 (compounding!)
8. Bonds over 1900 to 2016: world real returns 1.8%, vol 11%. Negative real returns for Austria, Italy, Japan, and Germany (even after taking out hyper inflation in 1922-1923).
9. "smart beta"/factor investing (momentum, low vol, size = small caps, income = high yield, value vs growth): They've definitely outperformed in the past (1926 to 2016, USA), but it's unclear whether the "premium" persists now or in the future.
My personal conclusions:
1. Diversify. The "common wisdom" to put everything into equity (growing out of the 80's and 90's) has something going for it, but as the last decade and a half showed, is not fool proof. (Note that it makes no sense to move into bonds now, with the current rates!)
2. Assuming 6% or even 8% real returns (as some people seem to do) for retirement planning is optimistic. I think it's prudent to plan with 4% real return and a 3% withdrawal rate.
If you find further nuggets in the report, please share!
I highlight a few results below that I think might be of interest (particularly for people that are thinking about investing/retirement).
1. Annualised real total return (hence, ARTR) for the world from 1900 to 2016 (USD real terms) was 5.1% for equities, 1.8% for bonds.
For US equities, it was 6.4%.
(Note that this includes re-investment of dividends, so this is annualised real total return. Annualised real price return (capital gains without div reinvestment) was only 2.1%.)
(Note that the German DAX is a total return index, while most other commonly quoted indices are price return indices.)
2. The 1980's and 1990's were a golden age for stocks. The ARTR on the world equity index was a staggering 10.6%, thus doubling your investment every 7 years (real terms).
3. The years 2000 to 2016 were much worse for equities. The ARTR on the world equity index was just 1.9%, doubling your money only after 37 years.
ARTR were negative or zero in Italy, Portugal, Netherlands; 0.8% in Japan, 2.2% in Germany, 2.4% in the UK, and 2.7% in the USA. Better in countries with commodities: Australia 5.1%, New Zealand 6.4, South Africa 8.2%.
4. Over 2000–16, bonds were the best asset class in 16 of the 21 countries, returning ARTR 7.1% in Germany and 5.1% in the USA.
5. Vol (for 1900 to 2016) has been around 20% p.a. (world 17%, USA 20%, UK 20%, Germany 32% (bloody wars!)).
6. Equity worst years were down 40%-60% in many countries 2008, 73% to 90% in the axis countries after WW II.
7. Inflation 1900 to 2016 was 2.9% p.a. in the USA, 3.7% in the UK, 4.6% in Germany, 8.1% in Italy. So, over the period, US consumer prices rose by a factor of 28, UK by a factor of 70 (compounding!)
8. Bonds over 1900 to 2016: world real returns 1.8%, vol 11%. Negative real returns for Austria, Italy, Japan, and Germany (even after taking out hyper inflation in 1922-1923).
9. "smart beta"/factor investing (momentum, low vol, size = small caps, income = high yield, value vs growth): They've definitely outperformed in the past (1926 to 2016, USA), but it's unclear whether the "premium" persists now or in the future.
My personal conclusions:
1. Diversify. The "common wisdom" to put everything into equity (growing out of the 80's and 90's) has something going for it, but as the last decade and a half showed, is not fool proof. (Note that it makes no sense to move into bonds now, with the current rates!)
2. Assuming 6% or even 8% real returns (as some people seem to do) for retirement planning is optimistic. I think it's prudent to plan with 4% real return and a 3% withdrawal rate.
If you find further nuggets in the report, please share!