Here’s some useful data on US historical asset class returns, both in regular ol’ USD terms and, more usefully for UK investors, GBP flavour.

By converting US returns into sterling and subjecting them to the wealth-stripping acid of UK inflation, we can see if American investment exceptionalism holds up for Brits.

We’ll start with US asset class real returns including reinvested income (in USD) since 1900:

Data from JST Macrohistory1 and Aswath Damodaran. July 2024.

As you can see, equities (stocks) have done much better than bonds or cash over the long-term.

Three important caveats:

• The seemingly inexorable rise of equities disguises many setbacks, such as the 2008/9 bear market.

• The US has been one of the very best performing countries in stock market terms over the past 124 years. Extrapolating this to other regions (or even into the future) could be misleading.

• A UK investor putting money to work in the US faces currency risk, which can increase or reduce your returns, as we’ll see below.

Let’s now look more closely at US historical annualised2 asset class returns including gold and commodities.

US asset class annualised returns (% per annum)

	2023	10 years	20 years	50 years	90 years	124 years
Equities (stocks)	21.9	9.2	7	7.1	7.1	6.7
Government bonds	0.5	-0.4	1.1	2.7	1.4	1.4
Gold	9.2	2.3	5.6	2	1.3	0.7
Commodities	-10.9	-3.8	-2.6	0.5	3.4	–
Cash (Treasury bills)	1.6	-1.4	0.9	1	0.4	1

Data from Summerhaven3, BCOM TR, JST Macrohistory4, Aswath Damodaran, The London Bullion Market Association, and Measuring Worth. July 2024.

Investing returns sidebar – All returns quoted are inflation-adjusted, annual total returns (including dividends and interest). Investing fees are not included.

As the table shows, US equities have delivered returns far ahead of inflation.

There are only a few other stock markets in the world that can compete with the US, as our World equities post reveals. (That article needs an update, but if you’re thinking Scandinavia and the other Anglophone countries are contenders – plus South Africa – then you’re on the right lines.)

While USD gold and commodity results are nothing to write home about, their government bond and cash returns have trounced their UK equivalents even more soundly than equities in relative terms.

But the question is: do monster-truck size US profits hold up for UK investors once brought ashore?

US asset class annualised returns in GBP (% per annum)

	2023	10 years	20 years	50 years	90 years	124 years
Equities (stocks)	16.5	11.6	8.3	7.5	7.3	6.9
Government bonds	-4	1.8	2.3	3.1	1.6	1.6
Gold	5	4.9	7.1	2.3	1.4	0.9
Commodities	-15.9	-1.4	-1.3	0.6	4	–
Cash (Treasury bills)	-2.9	0.8	0.3	1.4	0.6	1.1

Source: see table one

The pound strengthened against the dollar in 2023, weakening US returns once translated into sterling. Moreover, our annual inflation rate was considerably worse too, reducing a UK investor’s real return further.

Over longer periods, the secular decline of the pound has boosted US returns for UK investors: a useful hedge for the loss of purchasing power associated with our waning influence.

And yet over the very long-term, it’s mattered little whether you consumed your US profits in pounds or dollars. On the UK side, the currency gains were mostly offset by our higher inflation (see the 124-year column).

Most Monevator readers likely invest in a global tracker fund and thus their fortune depends far more upon US equities than any other market.

But should we also be positioned in US Treasuries ahead of gilts?

Well, read that article and you’ll see that superior US bond returns don’t always arrive when we need them – i.e. in the midst of a stock market crisis.

Using historical asset class returns

An understanding of historical returns is important because it helps us get over behavioural quirks such as recency bias.

Recency bias is the tendency we all have to think that things will continue in the same vein as they have recently, even when the long-term data says otherwise.

For instance, if you go out in a T-shirt and shorts in October in Scotland without checking the weather forecast – just because it was sunny yesterday and the day before – then you are suffering from recency bias.

(You’ll probably soon be suffering from the flu, too!)

Hence it’s very misleading to consider just the last couple of years of asset class returns when deciding how to construct a long-term portfolio.

Only cash and very short-term government bonds provide a secure return over a short period.

All other asset classes are too volatile for that.

For example, let’s consider the equivalent historical data for the US as seen from the vantage point of 2013.

Returns to 2013: US asset class annualised returns in GBP (% per annum)

	2013	10 years	20 years	50 years	90 years	114 years
Equities (stocks)	28.8	5.1	6.5	5.5	7.1	6.4
Government bonds	-13.8	2.7	3.7	2.5	2.1	1.5
Gold	-30	9.4	3.2	2.8	1.5	0.5
Commodities	-12.6	-1.1	2.2	2.1	–	–
Cash (Treasury bills)	-0.4	-0.2	0.9	1.6	1.2	1.1

Source: see table one

You can see the long-term return figures are little changed (for instance, equities had returned 6.4% p.a. over the 114 years to 2013, versus 6.9% p.a. over 124 years to 2023).

Shorter-term though, things are different.

Against popular expectations, 2013 was a stellar year for US stocks. Yet 10-year returns still bore the scars of the Global Financial Crisis, while bonds and gold were uplifted by the same.

Over the longer term, the traits of the different asset classes typically reassert themselves, although the true potential of gold is still a mystery.

The long and short of it

Stocks tend to outpace other asset classes over the medium to long-term precisely because they are far riskier over the short-term.

If the expected returns from equities weren’t higher than bonds, then nobody would choose to own them over less volatile and ultra-safe bonds – and the prices of stocks would accordingly fall until their expected returns rose.

That’s exactly what happened after bubbly periods for equities such as 1999 or 1929.

But while all this looks obvious in hindsight, timing the market to try to avoid booms and busts is notoriously difficult.

Nearly all the methods of stock market forecasting you’ll read about have proven very unreliable, and the best method isn’t much better than that.

This means that most people trying to save and invest for the future are best advised to follow a passive investing strategy, rebalancing their portfolios periodically to smooth out the booms and busts.

Over the long term – such as 40 years of investing towards retirement – the characteristics of different asset classes such as stocks, bonds, and cash should play out like they have in the past.

For that reason, if you’re using an investment return or compound interest calculator then it’s okay to use long-term historical returns as a proxy for the interest rate function required. Just bear in mind that the US stock market has been one of the best-performing of all developed world nations.

UK historical asset class returns offer a more cautious reference point.

1. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298. [↩]
2. The average annual percentage amount by which each asset grew (or shrunk) over the period. [↩]
3. Bhardwaj, Geetesh and Janardanan, Rajkumar and Rouwenhorst, K. Geert, “The First Commodity Futures Index of 1933,” Journal of Commodity Markets, 2020. [↩]
4. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298. [↩]

What caught my eye this week.

There have been several times over the past couple of years when I’ve had to admit to myself I miss the pandemic.

Not, it goes without saying, the horrible deaths.

Nor the vaguely wartime spirit and the disaster movie nightly briefings.

Not even the pretty good go of it that Monevator readers and myself made of talking – and constructively disagreeing with – each other through the early uncertainty, science, and economics of those first few weeks (before the debate metastasised into just another of the bifurcations that everything resolves to now). Though I do have fond memories of those conversations.

No – I mean the feeling of being completely off the hook.

Of not berating myself for declining to YOLO through some particular evening but preferring to stay in with a book.

Or of not feeling that I had to see a certain few people who to be honest I now haven’t seen since Covid. (They probably felt the same way.)

The quiet peace for large stretches of time of simply being alone.

You’ve got to fight for your right

Perhaps it’s unsurprising I found myself taking the other side of an essay this week in The New Humanist urging us all to finally shake off the pandemic and to get out more.

In The Introverts Are Winning, author Marie Le Conte laments how:

In the years after restrictions were lifted, many naturally outgoing people – this writer included – have found it that bit harder to get their friends out of the house.

Plans somehow require more effort than ever to get made, and are always at risk of getting cancelled at the last minute. A spontaneous pub trip, once a cornerstone of British social life, now takes work to organise.

All true of me. Indeed if you defined me by my social life, I went into the pandemic a slightly grumpy 35-year old and came out a young-ish 50-something.

And these days, when it comes to going ‘out out’, as my girlfriend would say (over WhatsApp, of course, where much of our relationship happens) I very often cba.

Le Conte quotes French philosopher Pascal Bruckner – author of The Triumph of the Slippers – who believes:

“A new anthropological type is emerging: the shrivelled, hyperconnected being who no longer needs others or the outside world. All of today’s technologies encourage incarceration under the guise of openness.”

Which… seems a tad harsh?

Nobody goes there anymore. It’s too crowded

But I don’t know. Maybe Bruckner’s right.

Because when the author of The Introverts of Winning in The New Humanist makes her case for visiting the outside world, it sounds to me like little more than a charity drive for my local newsagent.

Le Conte does not paint a compelling picture of that realm of strangers, awkwardness, intolerance, and rage.

Indeed compared to the joy of staying in – where everything is predictable, and most of human culture is at the end of a finger tap or the click of a remote control – choosing to have a spontaneous meeting with some other zombies who’ve stumbled blinking into messy and literally unfiltered reality sounds about as appealing as letting a drunk carol-singing rugby team in one by one to use your downstair’s loo.

Mushroom for a funghi

Don’t get me wrong, I’m not a social recluse. Not even a wallflower.

For years The Accumulator thought I was an outright hedonist, until he knew me better.

I enjoy social stuff on my terms and my schedule. It’s all the unwanted stuff that does me in.

But I do find it easy to be alone.

I once did a work-related psychometric test, and the chap who conducted it (who for various reasons I knew independently of this test) raised an eyebrow when he gave me the result and told me he almost never saw people like me in testing – because they never made it to an office job.

I watch news stories about intrepid explorers living alone for two months with a shrug. So easy!

Coop me up in the International Space Station with a couple of others though and I’d be out the waste disposal chute long before my time was up.

I’m a high-functioning ultra-introvert in what was– until the pandemic – always an extrovert’s world.

Let’s all not meet up in the year 2000

Add it all up and even I know that I would hate to go back to prescribed global lockdowns.

My bout of Covid I mentioned before that started a few weeks ago has given way to what my GP calls a resilient ‘rebound infection’ and I’m now on antibiotics – plus rest and more rest.

As a result, I’ve spent most of the actual sunny bit of this summer canceling engagements.

It’d be nice to see my friends. It’s all a bit more 2020 than I’d prefer.

But, on the other hand, to go back to 2019?

Or even to the early 2010s – the last time that I commuted daily back and forth on a crowded tube to an office in the rush hour – with all that entailed?

Or to feel like I had to stay out in some pub, front room, club or garden party for an extra hour and then another hour because someday I’d be 30/40/50-years old and I’d regret leaving?

Well someday has come and I don’t regret the times I did leave.

I have other regrets! But overdoing it just to keep up with the extroverts is not one of them.

Not going out to work, either

Incidentally and on an investing note, this is all what’s kept me from piling into commercial property.

A favourite old real estate stock I follow is yielding 9%, has all its offices in ring-fenced special purpose vehicles so shouldn’t collapse in a realistic worst-case scenario – and as I wrote a few weeks ago I believe interest rates are coming down anyway.

But maybe the return-to-work bounce has peaked too?

That’s not something we had to consider before when judging the commercial real estate cycle. What went down may no longer come back up.

The world is different. Bruckner is right.

He’s got the whole world in his hands

Maybe you’re an outgoing party-mainlining extrovert and if so good for you.

If these difficult years we’re living through have excelled at anything, it’s making more room for self-identification. Let the party crowd party harder I say.

Even I will see you at some future party. But I’m not sure which – and I won’t be at the one after that.

Not now – not after the pandemic. It broke that compulsion. Now there’s simply too much good stuff to stream on Netflix and Spotify instead. And all those specialist aquarium videos to watch on YouTube that didn’t exist five years ago, let alone when I was a fish nerd of a kid.

If enjoying so much good stuff makes me a ‘shrivelled, hyperconnected being’ then all I can say is shrivel me more.

At home alone

I know some of my carelessness about hitting my social step count nowadays must be an age thing too – my 35-to-55 transformation notwithstanding.

But still I wonder – worry even – whether future generations of introverts will enjoy the same get out of jail card on their tendencies that I now do, whatever Bruckner thinks.

Because awareness of that card was what the isolation of the pandemic gave us. A rare gift.

Future introverts may well have everything they need in their living room – or on a quiet walk in gloriously deserted countryside. (With everything else they need summonable on their phones, of course).

But I suspect they’ll be made to feel guilty about it.

What about you? Do you miss the greatest excuse for not going to a wedding since WW2? Or have you been revenge socialising since the moment the last curfew ended?

Let us know in the comments below. Especially if you can tease out an investing-related angle.

And have a great weekend whoever you’re with – or without.

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