![]() bond returns are nowhere near the same roller coaster ride as shares. Using the same sized vertical axis, below you can see that annual U.S. bonds, which are once again tempting us with their yields, you may ask? The chances of losing money in the share market has tended to become DRAMATICALLY smaller the longer you are invested. And at 20+ year horizons they disappear completely (historically investors have never lost money in real terms for investing periods of 20 years or more in U.S. The ride becomes a lot less volatile as you move out to longer time horizons.Īt 10-year horizons, negative real returns become quite rare. However, we’ve also shown the rolling 5, 10, 20 and 30 year per annum returns in the other lines. USA: Real Holding Period Returns – Shares The fact the vertical axis has to go from -60% to +60% to fit the returns in should give you some idea of the wild year-to-year ride. In this next chart, the gold lines show the real annual returns for the U.S. The difficulty many investors have though sticking with shares is they can be volatile/risky/a rollercoaster over the short term. The main takeaway from these charts is usually: 'Wow! It’s insane how much shares have outperformed over the very long term'. We’ve also shown it with a ‘log’ vertical axis because again, if we don’t it would look crazy as you would barely be able to see the bonds and bills lines given how much shares won by. And ultimately over long periods of time what investors generally care most about is how much their purchasing power (wealth increases above inflation) has grown. Here we show it in ‘real’ terms, that is after inflation, because without doing so the numbers start to look nonsensical. stocks, bonds or bills (you can also think of bills as short-term term deposits for those in Australia). The chart shows how much a US$100 investment in year 1900 (the equivalent of about US$4,000 in today’s dollars) would have grown to by the end of 2022 if you’d invested in U.S. Data from 1 January 1900 to 31 December 2022. Source: Cambridge Decades of Data, Factset, Ophir. United States: Cumulative Growth of $100 (real terms) ![]() If you’ve read enough investment articles over the years, you have probably come across a long-term returns chart like the one below. A sudden shift into bonds could dent an investor’s ability to build long-term wealth and protect against inflation if that is their goal. While investors may be tempted by ‘less risky’ bonds, it’s vital to understand the long-term picture. We have gone from a TINA (There Is No Alternative) investing environment where shares were often seen as the only game in town when interest rates were near zero to a TIARA investing world (There Is A Reasonable Alternative) where bond yields have become more attractive. Stocks versus bonds is a vital question given the rise in bond yields and interest rates in most major markets over the last 18 months. At least that’s what the data shows, as we’ll explain in this article. ![]() But it is correct, with one tiny caveat: 'in the long run'. ![]()
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