The Real Returns of Bonds, Cash, and Equities

Investing is a journey that spans decades, and as investors navigate the complex landscape of financial markets, understanding the historical performance of various asset classes becomes paramount. In this blog post, we will take a deep dive into the real returns of bonds, cash, and equities over the past century, drawing insights from data spanning from 1900 to 2022.

A Snapshot of Historical Returns

The image accompanying this post serves as a powerful visual representation of the total return of £1 in real returns for bonds, cash, and equities from 1900-2022. It is evident from the illustration that equities emerge as the frontrunner, boasting a total return of £386, followed by bonds at £4 and cash at £2. This historical snapshot underscores equities as the most lucrative investment over the long term, while cash has proven to be the least profitable.



Source: JP Morgan, 2023

Equities: The Long-Term Winner

Historically, equities have consistently outperformed bonds and cash in terms of returns. Over the past 121 years, global equities have delivered an impressive annualised real USD return of 5.3%. In the UK, the real return of equities stands at a commendable 5.3%. This aligns seamlessly with the visual representation, emphasising equities as the go-to choice for investors seeking substantial long-term returns.

Bonds: A Steady Performer

While bonds have historically offered lower returns compared to equities, they have carved a niche as a steady performer. Global bonds have delivered an annualised real USD return of 2.1% over the last century, and in the UK, the real return of bonds hovers at 1.4%. Despite their comparatively modest returns, bonds play a crucial role in investment portfolios, providing stability and a source of reliable income.

Cash: The Safe Haven

Cash investments, particularly in the form of treasury bills, have consistently provided the lowest returns among the three asset classes. Global treasury bills have yielded an annualised real USD return of 0.8% over the past 121 years, with a similar trend observed in the UK at 0.9%. Despite their lower returns, cash investments are often considered a safe haven, especially during times of market volatility, offering investors a refuge when uncertainty prevails.

Conclusion

Informed decision-making is the cornerstone of successful investing, and understanding the historical returns of different asset classes is a key component of that process. While equities have proven to be the historical winner in terms of returns, the role of bonds and cash should not be underestimated. Bonds contribute stability and income generation to a portfolio, while cash serves as a safe harbour in turbulent market conditions.

It's essential to bear in mind that past performance does not guarantee future results, and all investments carry inherent risks. As investors chart their course in the financial markets, considering individual financial goals and risk tolerance remains paramount. In this dynamic landscape, a diversified portfolio that incorporates the strengths of equities, bonds, and cash can be a prudent strategy for long-term success.


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This blog post is for informational purposes and should not be considered financial advice. Always consult a financial adviser for personalised guidance. 

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