Stocks, Bonds and Gold Returns from 1922+

Stocks have outperformed t-bills, t-bonds, and gold over the 5, 10, 30, 40, and 50 year periods ending 2018. Stocks only underperformed gold in the prior 20-year period due to the great recession.

Period Ending 2018 Stocks Gold T-Bonds T-Bills
5 Years 50% 7% 16% 5%
10 Years 239% 47% 22% 5%
20 Years 195% 339% 130% 43%
30 Years 1,589% 206% 502% 138%
40 Years 7,434% 517% 1,493% 462%
50 Years 10,263% 3,213% 2,446% 900%

Historical Prices of Stocks vs Bonds vs Gold

The returns of each asset class can be easily seen in the visualization below.

Which is better: Stocks, Bonds, or Gold?

Aren’t data visualizations great? We can see that if total returns are our goal, we should be holding equities over bonds and gold the majority of the time. For most investors, this includes investing in low-cost index funds as it’s challenging for most investors and traders to beat the market.

Are Bonds Less Risky Than Stocks?

In the media, you often hear than bonds are less risky than stocks. If anyone ever tells you that, steer clear of their advice because they don’t know what they’re talking about:

You cannot talk about risk without considering the investment timeline.

If we use history as a guide, a person with $100,000 and a 30-year horizon can invest in “less risky” bonds and compound their money to $602,000. If that same person invests in stocks, they will end up with $1,689,000. Whose retirement is in a less risky position?

The “bonds are less risky than stocks” mantra holds up when the timeline is shorter.

  Stocks Bonds T-Bills
Standard Deviation 18.0% 4.4% 2.6%
Largest Loss -43% -5% 0%
Positive Years 74% 92% 100%

Using historical data as a guide, investors should hold stocks over the long term and reduce portfolio volatility as they draw nearer to withdrawing their investments.

There are ways to improve total returns while lowering “risk” by using leverage, combining assets, and targetting volatility. But for most retail investors, this is a bad idea.

Why Do Stocks Return More Than Bonds?

History shows that being an owner is more profitable than being a lender. Let’s think about why.

The first reason is due to risk. Debt holders always get paid before equity investors. Stockholders get what’s left after debts are satisfied. Remember the basic accounting equation:

Equity = Assets - Liabilities

Investors are well aware of this risk, and this is why there is an equity risk premium.

The second reason is due to asymmetrical payoffs. When you own debt, you can only earn as much as the coupon and interest payments. The upside is capped. When you own a business or stock, there is no cap on the potential profits you may receive.

Gold, on the other hand, isn’t a productive asset. Investors generally hold gold as protection against adverse currency movements and a hedge against inflation. It’s often inversely correlated with the stock market.

Historical Data for Stocks, Bonds & Gold

For those interested in running your own analysis, please see the below data.

Price History
Stocks T-Bills T-Bonds Gold
Year
1929 131.88 106.34 105.07 99.81
1930 98.75 111.18 109.85 99.90
1931 55.46 113.74 107.03 82.54
1932 50.66 114.96 116.44 100.10
1933 75.99 116.06 118.60 127.38
1934 75.09 116.44 128.05 167.83
1935 110.18 116.64 133.78 168.55
1936 145.38 116.84 140.49 168.70
1937 94.00 117.19 142.43 168.31
1938 121.53 117.29 148.43 168.60
1939 120.20 117.33 154.98 166.52
1940 107.37 117.36 163.35 163.76
1941 93.66 117.46 160.04 163.76
1942 111.61 117.85 163.72 163.76
1943 139.59 118.30 167.79 163.76
1944 166.15 118.75 172.12 163.76
1945 225.67 119.20 178.67 167.92
1946 206.65 119.65 184.26 167.92
1947 217.39 120.33 185.95 167.92
1948 229.79 121.56 189.58 167.92
1949 271.85 122.90 198.42 153.31
1950 355.60 124.34 199.27 167.97
1951 439.80 126.18 198.68 167.97
1952 519.62 128.29 203.19 167.39
1953 513.35 130.72 211.61 168.55
1954 783.18 131.98 218.57 169.52
1955 1038.47 134.17 215.65 169.47
1956 1115.73 137.60 210.79 169.28
1957 999.05 142.04 225.11 169.09
1958 1435.84 144.57 220.39 169.81
1959 1608.95 149.27 214.56 169.81
1960 1614.37 153.82 239.53 170.63
1961 2044.40 157.30 244.46 170.54
1962 1864.26 161.67 258.38 170.44
1963 2285.80 166.70 262.74 169.76
1964 2661.02 172.54 272.53 169.81
1965 2990.97 179.28 274.49 169.91
1966 2692.74 187.95 282.47 169.96
1967 3333.69 196.10 278.01 169.09
1968 3694.23 206.41 287.11 187.18
1969 3389.77 219.96 272.71 198.79
1970 3510.49 234.66 318.41 181.13
1971 4009.72 245.32 349.57 210.35
1972 4761.76 255.01 359.42 309.19
1973 4080.44 272.16 372.57 516.30
1974 3023.54 293.33 379.98 889.45
1975 4142.10 310.90 393.68 673.92
1976 5129.20 326.35 456.61 647.70
1977 4771.20 343.09 462.50 776.25
1978 5081.77 366.87 458.90 1005.47
1979 6022.89 403.33 461.98 2201.64
1980 7934.26 448.58 448.17 2878.18
1981 7561.16 512.73 484.91 1983.99
1982 9105.08 569.18 644.04 2149.49
1983 11138.90 617.26 664.65 1883.70
1984 11823.51 676.60 755.92 1548.81
1985 15516.60 727.26 950.29 1552.06
1986 18386.33 771.15 1181.06 1892.74
1987 19455.08 815.27 1122.47 2352.73
1988 22672.40 867.86 1214.78 2024.63
1989 29808.58 938.24 1429.72 1980.60
1990 28895.11 1009.08 1518.87 1829.51
1991 37631.51 1065.69 1746.77 1746.78
1992 40451.51 1101.98 1910.30 1619.74
1993 44483.33 1134.84 2181.77 1854.62
1994 45073.14 1180.07 2006.43 1834.98
1995 61838.19 1245.15 2477.55 1874.41
1996 75863.69 1307.68 2512.94 1785.20
1997 100977.34 1373.76 2762.71 1396.90
1998 129592.25 1438.70 3174.95 1410.84
1999 156658.05 1503.58 2912.88 1366.09
2000 142508.98 1590.23 3398.03 1327.29
2001 125622.01 1648.63 3587.37 1337.69
2002 98027.82 1675.96 4129.65 1679.73
2003 125824.39 1693.22 4145.15 2013.79
2004 139341.42 1714.00 4331.30 2107.40
2005 146077.85 1765.59 4455.50 2481.86
2006 168884.34 1848.18 4542.87 3057.57
2007 178147.20 1933.98 5006.69 4033.62
2008 113030.22 1964.64 6013.10 4207.79
2009 142344.87 1967.29 5344.65 5261.25
2010 163441.94 1969.84 5796.96 6799.71
2011 166871.56 1970.44 6726.52 7406.87
2012 193388.43 1971.42 6926.40 8019.35
2013 255553.31 1972.72 6295.79 5816.64
2014 290115.42 1973.77 6972.34 5584.18
2015 294115.79 1977.91 7061.89 5133.04
2016 328742.28 1988.00 7110.65 5567.97
2017 399768.64 2015.63 7309.87 6301.40
2018 382850.00 2063.40 7308.65 6200.53
Return History
Stocks T-Bills T-Bonds Gold
Year
1930 -0.25 0.05 0.05 0.00
1931 -0.44 0.02 -0.03 -0.17
1932 -0.09 0.01 0.09 0.21
1933 0.50 0.01 0.02 0.27
1934 -0.01 0.00 0.08 0.32
1935 0.47 0.00 0.04 0.00
1936 0.32 0.00 0.05 0.00
1937 -0.35 0.00 0.01 -0.00
1938 0.29 0.00 0.04 0.00
1939 -0.01 0.00 0.04 -0.01
1940 -0.11 0.00 0.05 -0.02
1941 -0.13 0.00 -0.02 0.00
1942 0.19 0.00 0.02 0.00
1943 0.25 0.00 0.02 0.00
1944 0.19 0.00 0.03 0.00
1945 0.36 0.00 0.04 0.03
1946 -0.08 0.00 0.03 0.00
1947 0.05 0.01 0.01 0.00
1948 0.06 0.01 0.02 0.00
1949 0.18 0.01 0.05 -0.09
1950 0.31 0.01 0.00 0.10
1951 0.24 0.01 -0.00 0.00
1952 0.18 0.02 0.02 -0.00
1953 -0.01 0.02 0.04 0.01
1954 0.53 0.01 0.03 0.01
1955 0.33 0.02 -0.01 -0.00
1956 0.07 0.03 -0.02 -0.00
1957 -0.10 0.03 0.07 -0.00
1958 0.44 0.02 -0.02 0.00
1959 0.12 0.03 -0.03 0.00
1960 0.00 0.03 0.12 0.00
1961 0.27 0.02 0.02 -0.00
1962 -0.09 0.03 0.06 -0.00
1963 0.23 0.03 0.02 -0.00
1964 0.16 0.04 0.04 0.00
1965 0.12 0.04 0.01 0.00
1966 -0.10 0.05 0.03 0.00
1967 0.24 0.04 -0.02 -0.01
1968 0.11 0.05 0.03 0.11
1969 -0.08 0.07 -0.05 0.06
1970 0.04 0.07 0.17 -0.09
1971 0.14 0.05 0.10 0.16
1972 0.19 0.04 0.03 0.47
1973 -0.14 0.07 0.04 0.67
1974 -0.26 0.08 0.02 0.72
1975 0.37 0.06 0.04 -0.24
1976 0.24 0.05 0.16 -0.04
1977 -0.07 0.05 0.01 0.20
1978 0.07 0.07 -0.01 0.30
1979 0.19 0.10 0.01 1.19
1980 0.32 0.11 -0.03 0.31
1981 -0.05 0.14 0.08 -0.31
1982 0.20 0.11 0.33 0.08
1983 0.22 0.08 0.03 -0.12
1984 0.06 0.10 0.14 -0.18
1985 0.31 0.07 0.26 0.00
1986 0.18 0.06 0.24 0.22
1987 0.06 0.06 -0.05 0.24
1988 0.17 0.06 0.08 -0.14
1989 0.31 0.08 0.18 -0.02
1990 -0.03 0.08 0.06 -0.08
1991 0.30 0.06 0.15 -0.05
1992 0.07 0.03 0.09 -0.07
1993 0.10 0.03 0.14 0.15
1994 0.01 0.04 -0.08 -0.01
1995 0.37 0.06 0.23 0.02
1996 0.23 0.05 0.01 -0.05
1997 0.33 0.05 0.10 -0.22
1998 0.28 0.05 0.15 0.01
1999 0.21 0.05 -0.08 -0.03
2000 -0.09 0.06 0.17 -0.03
2001 -0.12 0.04 0.06 0.01
2002 -0.22 0.02 0.15 0.26
2003 0.28 0.01 0.00 0.20
2004 0.11 0.01 0.04 0.05
2005 0.05 0.03 0.03 0.18
2006 0.16 0.05 0.02 0.23
2007 0.05 0.05 0.10 0.32
2008 -0.37 0.02 0.20 0.04
2009 0.26 0.00 -0.11 0.25
2010 0.15 0.00 0.08 0.29
2011 0.02 0.00 0.16 0.09
2012 0.16 0.00 0.03 0.08
2013 0.32 0.00 -0.09 -0.27
2014 0.14 0.00 0.11 -0.04
2015 0.01 0.00 0.01 -0.08
2016 0.12 0.01 0.01 0.08
2017 0.22 0.01 0.03 0.13
2018 -0.04 0.02 -0.00 -0.02

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Leo Smigel

Based in Pittsburgh, Analyzing Alpha is a blog by Leo Smigel exploring what works in the markets.