Back to the future

• Equities, not housing, have been the best long-run investment, contrary to  recent claims
• Globally, the returns and risks from housing have been between those on equities and bonds
• Gold has given poor returns, high volatility, and been a poor inflation hedge
• Collectibles such as art, wine and musical instruments have beaten cash and government bonds
• Episodes of volatility, as in early 2018, are hard to predict, tell us little about future returns, and appear as mere blips in the long secular rise of equities
• We should expect lower investment returns in future on all asset classes
• Value investors have experienced a lost decade, but there is no guarantee that is about to change

Published by the Credit Suisse Research Institute, in collaboration with London Business School professors, the Credit Suisse Global Investment Returns Yearbook has evolved into a reference volume providing respected long-run return data and risk premium estimates for 23 national stock and bond markets. The 2018 edition of the Yearbook is published today.

In the book, Professors Elroy Dimson and Paul Marsh and Dr Mike Staunton of London Business School examine the industrial transformation that has taken place since 1900, alongside the parallel transition in markets as countries have moved from emerging to developed status. The authors also assess the returns and risks from investing in equities, bonds, cash and currencies in 23 countries and three different regions. They also examine factor investing and the profitability of different investment styles. In a new study, they analyze the investment performance of nonfinancial assets such as housing, collectibles and precious metals.

Key highlights:

• Since 1900, global equities have beaten bonds and bills, outperforming cash (Treasury bills) by 4.3% and bonds by 3.2% a year – a reward for the higher risk associated with investing in stocks
• Emerging markets were the stars of 2017, with a return of 38% vs 23% for developed markets. But over the last 118 years, they have underperformed developed markets by 1% per year.
• Since 1900, the average collectible rose 30-fold in terms of purchasing power – equivalent to an annualized price appreciation of 2.9% - but returned less than stocks globally.
• Of the four collectibles for which the Yearbook considers data back to 1900, wine performed the best with an inflation-adjusted price appreciation of 3.7%, while art achieved just 1.9% per year
• Precious metals and gemstones are not an effective hedge against inflation. Gold, silver and diamonds gave a return lower than US Treasury-bills
• Recent claims that housing provides a large financial reward at lower risk are incorrect. Since 1900, the quality-adjusted real capital gain on worldwide housing is approximately –2% per year.
• Housing has been less risky than equities, but the expression "safe as houses" is misleading. US house prices fell by more than 36% in real terms from their late-2005 peak until their low in 2012.
• Factor investing is backed up by long run evidence, but there are extended periods when particular styles underperform. Since the Global Financial Crisis, the value style has been the hardest hit.
• Looking ahead, expected returns on all asset classes are likely to be low as the authors’ research shows that when real interest rates are low, as they are today, subsequent returns tend to be lower.
• The authors predict that the margin by which equities are likely to outperform cash in future will be lower than the 118-year historical premium of 4.3% per year. Their long run forecast is 3½%.
• Even with a lower future equity premium of 3½%, equities are still expected to double relative to cash over a 20-year period.

The latest Yearbook reports on the long-run returns and risks from equity and fixed interest investments from 1900 to date. With the unrivalled quality and breadth of its database, the Yearbook is the global authority on the long-run performance of stocks, bonds, bills, inflation and currencies. For the first time it also focuses on a range of private wealth assets – from collectible stamps to fine wine – to understand financial returns over time of such investments.

The Credit Suisse Research Institute’s Richard Kersley said: "This annual study remains not only the most comprehensive of sources for the analysis of historic investment returns, but also a lens through which to gain perspective on the here and now. This is of heightened relevance as we begin 2018 with volatility returning to markets."

The authors, Professors Elroy Dimson and Paul Marsh and Dr Mike Staunton, added: "The importance of a long-term view when seeking to understand the nature of risk and return in the world’s markets remains. Over the long run, equity returns still dominate bond and bill returns."

The Global Investment Returns Yearbook examines risk over the long run and the historical extremes of investment performance. It documents the global long-term and shorter-term rewards for equity and bond investing, based on a detailed and comprehensive 118-year dataset.

The countries included in the Yearbook represented 98% of the global equity market in 1900 and still represent 91% of the investable universe at the start of 2018. The report also includes three regional indexes for equities and bonds denominated in a common currency.

The Global Investment Returns Yearbook consists of five main sections, the first four focusing on specific themes, while the fifth contains individual assessments on the 23 countries which remain core to the Yearbook. 

Additional document

The following is attached to this media release:

• An extract from the Global Investment Returns Yearbook 2018 

The complete publication is available only in hard-copy. Please address requests for a copy to the media contacts.