Investment vs Savings returns

ChiefGrasscutter

I had an interesting table of real returns from equities and gilts over a long period from Schroders today. The source is Barclays Equity Gilt Study 2009
I have no idea on what basis the figures are derived but I imagine that equity return includes dividends and cash returns will be taken as some average rate of return account.

The figures are

1 year Equities -30.5%
Cash 4.2%

10 years Equities -1.5%
Cash 2.4%

20 year Equities 4.6%
Cash 3.5%

50 years Equities 5.7%
Cash 2.0%

109 years Equities 4.9%
Cash 1.0%


I’m not sure anyone is going to be too bothered about the 109 years figure (as life was indeed different in 1899!) but it’s interesting that equities are currently only beating cash over a 20 year time frame. Given that recently anyway one can significantly beat the “average cash return account” by constantly swapping to the higher paying accounts I doubt that over 20 years equities would win out if compared to the highest paying cash account.

Meanwhile over at LloydsTSB wealth management they are trying the same analysis and are clearly delighted to inform us that over 130 years (yes really) equities at 9.75% average p.a out performed gilts at 4.75% average p.a

dunstonh

but it’s interesting that equities are currently only beating cash over a 20 year time frame.

Thats too simplistic I'm afraid. It assumes just one index and snapshots of different times. By the time you factor in a diverse portfolio including all the other sectors and rebalancing you would get different figures.

Given that recently anyway one can significantly beat the “average cash return account” by constantly swapping to the higher paying accounts I doubt that over 20 years equities would win out if compared to the highest paying cash account.

No-one can tell for sure but with current pricing and looking forward, you would have to say that over 20 years you would expect equities to slaughter cash.

tradetime

TBH it really depends upon how the statistics were derived, without knowing that it is one of those throw away "pub facts" with little meaning, you can contrive a statistic to show pretty much anything you want, governments do it all the time One would imagine the equities were in the "Buy and Hope" vein, ie buy a basket of stocks and hold forever, it's a horrible way to invest.

a7man

Its funny that all these figures are all released now the market is so low -its basically just for shock value. There is no point to these figures.

Compare the highest peak and the lowest trough for equities, get a mid value or average and that would be a fairer comparison. The market will recover, its just a matter of timing.

gozomark

these stats look worst when its time to buy, and best when its time to sell.....

cepheus

This link is quite interesting it shows the return on the SP500 from Dec 1976 to Dec 2006 near the top of the market after inflation, fees and taxes (presumably from a US perspective). This is only about 5% compound.

http://www.docstoc.com/docs/2410295/A-Study-of-Real-Real-Returns

cepheus

Intellectuals such as like Nassim Taleb warn about the introduction of bias when examining long term stockmarket growth. The biggest stockmarkets will be amongst the most successful, so we cannot base estimates on the likes of the US and UK. What happens if we analyse 100 year returns from mainland Europe for example (Germany, France, Russia) which must have been devastated through hyperinflation, revolution or war? I never see these quoted for some reason.

Of course this could never happen here it isn't that there aren't billions of hard working people who manufacture, mine and grow things that underpin our wealth in the West. What happens if they demand a better slice of the action after realising the added value of branding is inherently worthless! :rolleyes:

Count_Dante

cepheus wrote: »

Intellectuals such as like Nassim Taleb warn about the introduction of bias when examining long term stockmarket growth. The biggest stockmarkets will be amongst the most successful, so we cannot base estimates on the likes of the US and UK. What happens if we analyse 100 year returns from mainland Europe for example (Germany, France, Russia) which must have been devastated through hyperinflation, revolution or war? I never see these quoted for some reason.

Of course this could never happen here it isn't that there aren't billions of hard working people who manufacture, mine and grow things that underpin our wealth in the West. What happens if they demand a better slice of the action after realising the added value of branding is inherently worthless! :rolleyes:

Indeed. I wonder what a basket of shares traded on the Russian stock exchange in 1900 would be worth today...

When we talk about what our pension funds will be worth when we retire, we need to realise there is a not unreasonable possibility that the fund could disappear in a puff of smoke due to unforeseen events like you mention. Holding reasonable wealth in very liquid savings accounts is never a bad idea.

cepheus

Now this is interesting the real returns in various Stockmarkets 1921 to 1996 (unlike the previous post I doubt if these allow for charges and taxes)

from fig 1 in http://www.merage.uci.edu/~jorion/papers%5Ccentury.pdf